Money Laundering Bulletin
People, often with limited opportunities in their home country and who hope for better overseas, represent massive profit potential to those willing to move and exploit them. Significant sums will, inevitably, pass through financial institutions and work is underway, reports Paul Cochrane, on human trafficking indicators and creative identification of associated account-holders.
Scale of 'business'
Profits from human trafficking are estimated at US$32 billion a year and growing, according to the International Labour Organization (ILO), with the trade one of the fastest growing international crimes, now second to the drugs trade and ahead of arms trafficking. But despite its emotive nature as a crime, only recently has the money laundering angle to human trafficking been taken more seriously, and there is still a way to go.
Human trafficking grew exponentially in the post-Soviet Union era of globalization, to the point that 2.4 million people were trafficked at any one time in 2012. Some 20.9 million people are victims of forced labour, with profits from forced economic exploitation estimated at US$4 billion, and from forced sexual exploitation at US$28 billion, says the ILO. An estimated half of the profits, US$15.5 billion, are made in industrialized countries, and close to one-third in Asia, at US$9.7 billion, while on a global level this represents an average of US$13,000 per annum for each forced labourer.
International law and guidance
Efforts to curb the trade only took on a global dimension in 2003, when the United Nations Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children, entered into force, and by 2011, 143 states had ratified or acceded to it. At the financial level, the Financial Action Task Force (FATF) started to address trafficking in human beings (THB) in 2010, when the body sent out questionnaires to jurisdictions and collated typologies for a 2011 report, “Money Laundering Risks Arising from Trafficking in Human Beings and Smuggling of Migrants”. In 2012, FATF's revised recommendations included THB as a predicate offence.
While not a 21st century crime, the belated response to going after the revenues of human trafficking has meant there is no 'King Pins Act' (to borrow from the USA's Foreign Narcotics Kingpin Designation Act) as there is to cover the illicit drugs trade or terrorist financing. Neither are there convenient databases to screen for suspected traffickers.
“For terrorism and drug trafficking there are lists of suspects, both formal and informal, but to my knowledge there's no list of suspected human traffickers. It has been identified as a challenge for law enforcement and the private sector,” said Christian Larson, Programme Officer for Economic and Environmental Activities at the Office of the Co-ordinator of the Organization for Security and Co-operation in Europe (OSCE).
Compiling such a list would require cooperation between the financial sector and the government with anti-hunting trafficking organizations, which has been lacking until recently. “The anti-human trafficking world and the anti-money laundering (AML) world often works completely separately, with not enough known about either and vice versa,” said Larson. “Experts until recently didn't look at the financial side and prosecutors often don't have financial investigative training concerning THB. On the other side of the coin, AML experts understand transactions and how to trace funds to offshore jurisdictions or wherever, but often don't know enough about human trafficking and how it might appear.”
The London-based charity Finance Against Trafficking (FAT) has noticed a gradual change to tackling the financial side of THB, beginning with FATF's report. “It was a really good first step but a lot more needs to be done,” said Jantine Werdmuller von Elgg, Global Projects Officer at FAT. “While I think it is a good report, when it comes to businesses or financial institutions wanting to use it, it's not practical enough, so FAT have developed a Red Flag manual (soon to be released) to identify suspicious financial activity. Along with developing an online auditing tool, we hope this will create a change, starting with the UK and then grow from there.” FAT's aim is to turn THB from being a low risk, high reward crime into a high risk, low reward crime at both ends of the trade – the originating and destination country.
Understanding how human trafficking works is, of course, critically important to tackling the financial proceeds of traffickers, and to figuring out how traffickers utilise the financial system. A general definition of human trafficking is the recruitment of people by deception or coercion for exploitation, whether for prostitution, domestic labour, forced labour, crime or organ removal. This can mean that while migrant workers or people being smuggled to another country to start a new life are not initially trafficked persons, as going voluntarily, many become trafficked persons through being deceived and exploited by traffickers. ILO's criteria for forced labour include debt bondage, when somebody is not paid but works to pay off a debt; restriction of movement; and retention of passports or identity documents so a worker cannot leave or prove his/her identity.
Professor Louise Shelley, Director of the Terrorism, Transnational Crime and Corruption Centre at George Mason University in Virginia, USA, and author of “Human Trafficking: A Global Perspective” (2010), has identified a number of THB models that operate around the world. The first, developed by focusing on crime in the former Soviet Union, Shelley termed the “natural resources model”. As she explains: “Women are sold and resold like wholesale gas, and so not as much profit as there could be. Guess where the money goes? Sometimes into real estate, and small quantities are sent back to put into small businesses in the home country, but a lot is deposited in offshore accounts. In one case involving a man that was part of a trafficking ring, US$6 million wound up in Switzerland.” The Chinese version is a “trade and development model” that maximises profits along the chain, from the victim being trafficked from their home country to being forced into labour or sexual exploitation in another jurisdiction: this model favours alternative remittance systems and underground banking.
“Other models took a while to figure out,” said Shelley. “The American pimp model is high consumption and low savings, like the US economy. Few assets can be traced as so much is spent on consumption. Even though proceeds for the pimp can be in the hundreds of thousands not much is in traceable assets.”
The “supermarket model” refers to the trafficking and smuggling of people across the US border from Mexico, with money made on volumes not individuals. The Balkan version is the “violent entrepreneur model,” where organized rings overwhelm competitors through violent means.
“Trafficking models are different throughout the world, and they don't all operate in the same way. Human trafficking may intersect with the banking system, which is not what people thought before, but interacts in more ways than people realized, primarily with the credit card system. If you understand the attributes of business models it shows up in different ways,” said Shelley.
Intelligent track-back by JPMorgan
JPMorgan Chase recently adopted an innovative approach to tackling the financial side of human trafficking. The US bank reverse engineered a criminal indictment to identify clients who had visited the adult section of website Craig's List, focusing on Manhattan and between the hours of 1am and 5am. A small team of three people took six weeks to pull all of the phone numbers they could find on the website, and then compared them to the bank's customer database to see if anyone advertising a service or finding a partner was a customer. They also looked to see if account holders were buying a lot of DVDs or renting them, as human traffickers show films to keep victims occupied when not working. As a result JPMorgan Chase compiled a list of some 300 locations, gained knowledge of THB in New York City, and provided law enforcements with a customer database of suspects. (MLB contacted JPMorgan Chase for further comment but without success).
Law enforcement in the US and Europe has become more active. The US Department of Homeland Security's Homeland Security Investigations (HSI) section has launched Project STAMP (Smuggler and Traffickers Assets, Monies and Proceeds) to pursue THB via the financial route. And in Britain, the London Metropolitan Police set up Operation Golf to dismantle child trafficking gangs. In 2010, a joint operation by the Met with the Romanian police led to the arrest of 26 individuals for trafficking and exploiting 181 children. “They traced together the groups and links between both ends. People were prosecuted for THB but also for benefit fraud and money laundering,” said Werdmuller von Elgg.
Another success was the 'Sneep' case in Holland, which broke in 2008 and involved 120 women that had been trafficked and forced into sexual exploitation by a Turkish gang; some of the women had been openly on sale in the windows of red light districts for up to 10 years. “Sneep ran for 20 years, and the amount of money they generated was Euro 100,000 to Euro 200,000 a day. Most of it was traced to Turkey where it was laundered into real estate. That is one area that is not getting enough attention in AML; focusing on real estate is essential to countering THB,” said Shelley.
Yet while there is progress in tackling THB at the receiving end in the West, the originating countries – or indeed transit countries – have not been as cooperative in clamping down on the trade. “Some countries are not willing to address the push factor, of preventing women to take these “opportunities” elsewhere as their economies cannot support so many people, and they get remittances. There's often a lack of political will to challenge THB on the country of origin side,” said Larson.