The link between human trafficking and money laundering

“Human trafficking is one of the most profitable crimes in the world and a significant pipeline for money laundering”, according to Phil Kelly from Lysis Group. Trafficked victims endure extensive physical and emotional trauma, and according to the International Labour Organisation, forced labour produces an estimated $150 billion per annum. This horrific infringement on human rights was highlighted by media reports stating that Sir Mo Farah, a four-time Olympic champion, was trafficked to the United Kingdom as a child and forced to work as a domestic servant. A targeted approach According to the United Nations (UN), human trafficking can be defined as the recruitment, transportation, transfer, harbouring, or receipt of people through force, fraud, or deception, with the aim of exploiting them for profit.

Due to the secretive nature of these crimes, it is often difficult to determine the exact extend thereof, but according to the website, the number of global trafficked victims have tripled from 2008 to 2019 from an estimated 30, 961 to 105, 787 and it seems that India has been identified as the country with the highest number of people in modern slavery.

Phil stated that “Financial firms have an important role to play in the prevention of human trafficking by targeting and freezing the illicit funds generated from these crimes. This role consists of understanding regulatory requirements linked to human trafficking and implementing effective anti-money laundering (AML) and counter financing of terrorism (CFT) measures. This will assist in identifying the red flags that can indicate possible human trafficking-related transactions and can go a long way to isolate and track individual perpetrators and entities linked to human trafficking acts”.

Possible red flags linked to human trafficking:

1. The money that is generated through human trafficking must be disguised before it can be introduced into the legitimate financial system by either criminals or victims of human trafficking. Therefore, the following red flags might serve as indicators that clients could be involved in human trafficking: For victims, the red flags can often include constant transportation payments, brief periods in various cities and hotel spending. These individual transactions are not red flags for money laundering, but if combined, they might signal criminal activity.

2. Unusual financial behaviour may indicate that a client is attempting to launder profits obtained through human trafficking and this could include inconsistent transactions, transactions taking place in high-risk AML jurisdictions and unusual high amounts of money moving through a client account. Victims of human trafficking are often forced to share bank accounts and contact details. Statistics suggest that most transactions that are associated with human trafficking tend to take place between 10 pm and 6 am.

3. The act of funnelling is often associated with human trafficking payments where multiple payments are received from various sources in amounts that fall under the reporting thresholds.  These funds are then transferred to other accounts quite quickly. Another red flag that can point to illicit funds derived from human trafficking can include the establishing of shell corporations. This refers to firms that exists only on paper and has no office and no employees but may have a bank account or may hold passive investments or be registered with assets.

4. The significant high use of remittance payment services such as online payment services to countries of prior residence with no logical explanation, could also indicate links to human trafficking activities. Statistics highlight the challenges

The 2021 Global State of Anti-Money Laundering (AML) report, which was published by BAE Systems, indicated that 77% of compliance professionals disclosed that they did not feel confident that money laundering crimes, linked to human trafficking, could be stopped from passing through client accounts. The report is based on a survey that was conducted among 500 compliance and risk professionals regarding their perspectives on financial crimes within their firms. Almost 29% of surveyed professionals stated that their teams struggle to pin-point key indicators that could be linked to funds obtained from human trafficking and 21% stated that they lacked the AML intelligence within their firms.  The report also revealed that 60% of compliance professionals feel that refined criminal techniques have become more difficult to identify during the past 12 months, which is why it is vital for firms to be aware of the increasingly sophisticated nature of financial crimes.

Phil pointed out that “Compliance staff must be trained to be on the lookout for multiple, often smaller transactions when it comes to laundered funds that are obtained from human trafficking. Each transaction on its own might not flag possible money laundering but once all the transactions are combined, they could present a suspicious pattern. An example could include charges from a client staying in multiple low-cost hotels in various cities, and irregular but multiple cross-country trips. In isolation each transaction seems perfectly legitimate but in combination, it could point to suspicious transactions”. Expert assistance Firms must therefore ensure that they have the necessary controls in place to screen for, and the required training to detect attempts to launder the profits linked to human trafficking and other illegally obtained funds.

This is where Lysis Group can make a real difference because since 2001, we have established ourselves as global leaders in the field of financial crime (FC) compliance. We deliver a unique and cost-effective combination of superior service offerings across the full spectrum of financial crime compliance including client on-boarding, screening alert support, Know Your Customer (KYC) remediation, transaction monitoring remediation and our award-winning managed services.

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