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Recent FATF Report Provides New Guidance for Identifying Money Laundering Related to Human Trafficking

According to the Financial Flow from Human Trafficking report recently published by the Financial Action Task Force (“FATF”) and the Asia/Pacific Group on Money Laundering, human trafficking is estimated to generate $150.2 billion per year. 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 examines 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.

The FATF report identifies issues related to designing better efforts to detect money laundering related to human trafficking. First, the more exposure the offender and/or the victim have to the formal financial sector or government, the greater the opportunities for identifying signs of money laundering. Second, no single indicator alone is likely to confirm money laundering from human trafficking. Third, wider contextual information can prove useful in identifying signs of trafficking. Fourth, human trafficking may be easiest to identify at the victim level or at the lowest level of a criminal organization; at higher levels of criminal organizations, the indicators may be more opaque and suggest a variety of crimes.

The FATF report identifies a laundry list of unfortunate challenges in detecting, investigating, and prosecuting money laundering related to human trafficking. These include:

  • Limited international cooperation.
  • A myopic focus on the predicate offense and lack of awareness and concern regarding the associated laundering offenses.
  • Difficulty in detecting funds from human trafficking activities. The high volumes of cash, comingling of funds, use of hawala-type transfer systems, and the physical transportation of cash internationally make it difficult to follow the money.
  • Lack of detailed risk assessments and understanding because human trafficking remains a largely “hidden crime.”
  • Incomplete domestic information sharing among stakeholders.
  • Private sector difficulty in detecting and reporting suspicious transactions due to incomplete information from national authorities, and the challenges authorities face in prioritizing suspicious transaction reports.
  • Issues in identifying the proceeds from forced labor exploitation.
  • Victims may be reluctant or unable to provide information to authorities due to fear of retribution.
  • Lack of confirmed intelligence regarding proceeds of human trafficking contributing to terrorist financing.

The Role of Private Sector Financial Institutions

Private sector financial institutions can play a key role in detecting individuals suspected of human trafficking activity. The FATF report highlights the importance of financial institutions’ efforts to identify suspicious activity and money laundering through potential victim transactions.

Some financial patterns may indicate that the account holder is a victim of human trafficking. For example, financial institutions may be able to identify likely victims of trafficking for sexual exploitation through continued and excessive accommodation and transportation expenses such as airline tickets, train tickets, and hotel rooms. The FATF report identifies a number of other indicators that may alert financial institutions to potential victims of human trafficking, including:

  • A lack of living expense transactions.
  • Common mobile number, address and employment reference being used to open multiple accounts in different names.
  • Accounts funded through cash deposits, account transfers, or email transfer technology.
  • A pattern of deposits followed immediately by a significant portion of those funds being withdrawn or transferred to a different account.
  • The pay of multiple individuals being deposited into a single account.
  • Regular cash deposits conducted in different cities across the county.
  • Customers that are accompanied by an escort, handler or translator when making deposits/withdrawals.
  • Customers displaying a poor standard of dress and personal hygiene.

Financial institutions should be aware of these indicators and make efforts to incorporate them into their account monitoring and reporting efforts. Identifying suspicious account activity and submitting suspicious transaction reports are valuable tools in identifying and bringing human trafficking schemes to law enforcement’s attention. By identifying the financial transactions of the victim, law enforcement may be able to identify the individuals higher up in the criminal organization who are laundering the proceeds of the human trafficking.

Identifying and Combating Money Laundering From Human Trafficking Requires the Ongoing Cooperation of Public and Private Stakeholders 

The FATF report provides recommended practices to improve the effectiveness of combatting money laundering from human trafficking. These include:

  • Assessing money laundering risks from human trafficking, sharing with stakeholders and ensuring that they are understood. Further research analytics are needed regarding the predicate crime and the financial flows associate with it.
  • Leveraging expertise, capabilities and information through partnerships between the public sector, private sector, civil society and non-profit organizations. Increased cooperation and information sharing among these stakeholders could improve the effectiveness of efforts to combat human trafficking related money laundering.
  • Appropriately identifying suspicious transactions linked to human trafficking and creating useful suspicious transaction reports. Authorities should educate financial institutions on reporting suspicious transactions by suspected victims that are of low value, and financial instructions should in turn indicate to authorities that such reports relate to possible human trafficking when submitted.

As the FATF report stresses, the international nature of human trafficking means that jurisdictions should work together to better understand the challenges they face in detecting, investigating and prosecuting money laundering from human trafficking.

Copyright © by Ballard Spahr LLP

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About this Author

Gretchen Gurstelle, Ballard Spahr Law Firm, Minneapolis, Corporate Law Litigation Attorney
Associate

Gretchen Gurstelle is a skilled advocate and litigator with experience trying cases to juries and judges in federal and state court. Gretchen guides clients through all stages of federal and state civil, criminal, and regulatory proceedings, from responding to government subpoenas and conducting internal investigations to negotiating with government representatives and litigating any resulting claims or charges. Gretchen's practice also focuses on complex civil litigation. She has represented clients in contract disputes, insurance coverage disputes, and False Claims Act...

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