A people business – human trafficking and money laundering

 Money Laundering Bulletin, 16 June 2023

A global trade to rival narcotics, human trafficking and modern slavery may be rising up the risk register, but, Paul Cochrane finds, do yet not command sufficient attention, reflected in a lower than expected volume of suspicious activity reports.

Human trafficking and modern slavery has grown exponentially in recent years: in 2021, 50 million people worldwide were estimated to be living in modern slavery, 10 million more than in 2016, according to the International Labour Organisation (ILO). (1) These crimes - sometimes referred to with the acronym HT-MS – are extremely profitable, ahead of narcotics and arms trafficking, according to Tarana Baghirova, programme officer at the Organisation for Security and Co-operation (OSCE) in Europe.

Scaling up

Estimated to be generating US$150 billion in profits as long ago as 2014 by ILO, it is considered to be at least double that figure today, said Baghirova, at over US$300 billion a year.

HT-MS is an evolving crime and globally widespread, said Dr William Scott Grob, director for research at ACAMS, an international professional AML body (2). “Ten years ago I would have said there are particular HT-MS hotspots, but now everywhere has become a hotspot. People think it’s a big city problem when it’s clearly not - it can be in your neighbourhood in a small rural town in the USA. The amounts of money being generated are huge, like the drug business, and it is part of crime syndicates’ portfolios. They used to just focus on one area, but now have portfolios of what they can exploit and go wherever law enforcement does not scrutinise,” said Grob.

While certain jurisdictions are taking human trafficking and modern slavery (HT-MS) more seriously, evident in the passing of the UK Modern Slavery Act 2015, the US Trafficking Victims Protection Act 2000, the Australia Modern Slavery Act 2018, and Canada's Fighting Against Forced Labor and Child Labour in Supply Chains Act of 2023, the financial side of the crime is not being addressed comprehensively enough, said Simon Zaugg, an Anti-Money Laundering Specialist at the United Nations University Centre for Policy Research (UNU-CPR) in New York. 

NRAs, SARs

In 2022, the UN multi-stake holder initiative Finance Against Slavery and Trafficking (FAST), based at the centre, conducted an internal analysis of 30 national risk assessments (NRAs) from around the world. It found that only around 30% addressed HT-MS.

“When we look at NRAs that are more recently published, it is getting more of focus. However, when we look at the number of suspicious activity reports (SARs) filed by financial institutions to financial intelligence units (FIUs) worldwide, the numbers are extremely low. There is still this gap. HT-MS is still not as high a priority as it should be,” said Zaugg. (3)

Indicative of the lack of SARs related to HT-MS is that one FIU in an eastern European country received none over a 10-year period, he added, without naming the state. 

With HT-MS not considered a priority by many countries in Europe, this has created a vicious circle, with financial institutions not reporting SARs so there is less dissemination to law enforcement, and consequently fewer investigations and convictions. “This leads to there not being typologies or enough indicators, or case studies, which leads to, again, not being a priority so there are not many SARs filed,” said Zaugg.

An OSCE survey showed similar issues in Europe. In 2016, out of 57 participating states, only 25 countries, or 48%, have legislated to name HT-MS as a predicate money laundering offence. In 2021, just 36 countries, or 65% of member states, found trafficking through monitoring red flag indicators in SARs. While this record is far from stellar for developed European states, it does indicate progress, said Baghirova: “We are seeing more countries addressing the issue. Maybe it is only one trafficking case, but they are looking into identifying trafficking in financial flows,” she said.

The OSCE has closely followed Canada’s Project Protect, a private-public partnership involving Canadian FIU the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) charged with identifying HT-MS indicators in Canada’s financial system. Since 2016, the annual number of HT-MS cases identified related to sexual exploitation has increased by 750 percent, according to FINTRAC. (4) “Canada has become a sample country and an example to other states” in its approach to identifying the financial proceeds of HT-MS, said Baghirova.

The OSCE has also worked with Cyprus on targeting human trafficking and modern slavery offences linked to this Mediterranean island and recently launched a project with Switzerland following the publication of its 2019 paper 'Following the Money'. (5) “We’ve seen the paper used quite a bit. The Swiss FIU said the paper is our bible, and we are helping build the investigative framework in Switzerland. We are talking with selected countries where we see HT-MS financial flows to build frameworks through 11 steps (identified in the paper). Cyprus took initiative in a project where two banks, financial intelligence officers and the regulator sat together for a year going through retroactive data,” said Baghirova.

The Cypriot exercise identified seven sham marriages through SAR screening, now pending investigation, and the freezing of assets of a trafficker: “It is a major success as Cyprus went from zero to seven cases. It is not just the number of cases, but the approach to and understanding of human trafficking by the financial intelligence and financial sector, which went from non-existent to a certain level. Trafficking is underestimated in many countries but is one of the widest crimes that needs robust efforts from both the public and private sectors,” she said.

Drivers and business models

The need for governments to act has been sharpened by the Covid-19 epidemic, which has been a recent driver of human trafficking and exploitation. The pandemic prompted a shift online in how exploitation occurs. “During the pandemic, people couldn’t travel, but HT still flourished. It didn’t just go underground. We’ve seen the movement of HT from the main street to the back pages of newspapers to social media, which has become the amplifying platform for a lot of this activity,” said Grob.

There are two general categories of HT-MS, sex trafficking and labour trafficking. The US-based Polaris Institute analysed more than 32,000 cases of human trafficking documented between December 2007 and December 2016, releasing a report in 2017 that lists 25 HT-MS business models in the US. (6)

These include recreational facilities, healthcare, forestry and logging, carnivals, remote interactive sexual acts, factories and manufacturing, commercial cleaning services, arts and entertainment, illicit activities, landscaping, hotels and hospitality, construction, health and beauty services, personal sexual servitude, agriculture and animal husbandry, peddling and begging, restaurants and food service, travelling sales crews, pornography, bars, strip-clubs and cantinas, domestic work, residential, outdoor solicitation, illicit massage, health and beauty, and escort services.

Grob said there could be more than 25 models, given how HT-MS continuously evolves. Indeed, in the decade since the US Treasury’s FinCEN issued an advisory on HT in 2014, it has identified 20 new financial and behavioural indicators of labour and sex trafficking, and four additional typologies. (7)

Flexing with demand, constantly

One of the complexities of HT-MS is that it is not just sexual exploitation and labour exploitation, said Grob, as it can involve other criminal activities such as the movement of goods and the placement of cash. “It can involve a variety of displaced persons, from an opportunity to get a job in a developed economy and they get duped [into being exploited], to being forced to work in artisanal gold mines or other labour intensive activities… and to the connection to the movement of drugs like fentanyl,” said Grob.

“A lot of predicate crimes can be reduced to a simple set of crimes that are easy to recognise. But in HT, it is a scenario, being a collection of red flags and indicators. This is because it is not just one or a couple of things, but a multitude of factors that might not make sense. The challenge in the financial industry is how to refine your AML model, as there is a lot of variation in this. That is the quest – supporting SARs by tracking and collecting data to identify it as HT-MS and not get co-mingled with a mass of other SARs that law enforcement cannot easily identify,” said Grob.

Forced labour in construction and agriculture is considered fairly uniform worldwide, as is exploitation in the maritime industry, such as in the fishing sector. But when it comes to the adult entertainment industry this has waned as a form of HT-MS in the West due to heightened focus by law enforcement, said Grob.

Some human slavery trends are more prevalent in richer counties, however: “There are newer, less high-risk indicators in service-based businesses such as nail salons that use people that don’t need the local language – it is just a service to get paid,” he added.

Zaugg noted that HT-MS ML does not overly differ from other money laundering techniques:  

“When we have our pure AML glasses on, HT-MS is not that complex. General AML concepts that can be applied to drugs, fraud and corruption can be applied to HT. The tools around in the AML world can be used for HT because it generates money and profits, and needs to be laundered,” he said.

A 2023 UNU-CPR report ‘Detecting Financial Flows of Modern Slavery and Human Trafficking: A Guide to Automated Transaction Monitoring' gives the example of several individuals transferring to one account, which are then bundled and sent to a third account. (8) “This could be legitimate, such as a school trip where parents pay the teacher and the teacher transfers the money to the accommodation, but it could also be a money laundering scheme or it could be a debt bondage scheme – payers which are the victims from certain risk countries that we know have a high risk of being exploited in forced labour,” said Zaugg.

Online child exploitation is another example. Consumers of child pornography in Europe make a payment to a third party that is linked to a streaming platform in southeast Asia which is known for providing such services, he said.

Baghirova warned that there is no “one size fits all” approach to identifying HT-MS. “When looking at how people are exploited, it should be context driven, and focused on country specific criminal patterns,” she said.

NOTES:  

1) https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---ipec/documents/publication/wcms_854733.pdf 

2) See the Global Slavery Index - https://www.walkfree.org/global-slavery-index/ 

and Global Report on Trafficking in Persons 2022, UNODC - 

https://humantraffickingsearch.org/resource/global-report-on-trafficking-in-persons-2022/ 

3) FAST, in partnership with the World Bank, IMF and Council of Europe, is to soon publish a report on how countries can address HT and MS more comprehensively in NRAs, including threats and vulnerabilities, and will provide recommendations and guidelines. 

4) https://fintrac-canafe.canada.ca/new-neuf/nr/2021-07-30-eng

5) Following the Money, Office of the Special Representative and Co-ordinator 
for Combating Trafficking in Human Beings, 2019 - https://www.osce.org/files/f/documents/f/5/438323_0.pdf 

6) https://polarisproject.org/wp-content/uploads/2019/09/Polaris-Typology-of-Modern-Slavery-1.pdf 

7) Trafficking in Persons Report July 2022 - https://www.state.gov/wp-content/uploads/2022/10/20221020-2022-TIP-Report.pdf 

8) See Detecting Financial Flows of Modern Slavery and Human Trafficking: A Guide to Automated Transaction Monitoring - https://collections.unu.edu/eserv/UNU:9113/Indicators_Guide_Final.pdf 

and Establishing an Agile Response Process to Crisis and Conflict-related Modern Slavery and Human Trafficking Risks - https://collections.unu.edu/eserv/UNU:9108/Policy-Brief_Agile_Response_to_Crisis_FINAL.pdf