FinCEN Issues Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity
The Financial Crimes Enforcement Network (FinCEN) issued an advisory today to help financial institutions identify and report human trafficking. It is imperative that financial institutions enable their detection and reporting of suspicious transactions by becoming aware of the current methodologies that traffickers and facilitators use. It is also critical that customer-facing staff are aware of behavioral indicators that may indicate human trafficking, as the only outside contact for victims of human trafficking may occur when visiting financial institutions. Today’s advisory supplements FinCEN’s 2014 Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking — Financial Red Flags.
While it’s hard to note all the new things here, there is a section of new typologies identified since the 2014 Advisory:
1. Front Companies
Human traffickers routinely establish and use front companies, sometimes legal entities, to hide the true nature of a business, and its illicit activities, owners, and associates. Front companies are businesses that combine illicit proceeds with those gained from legitimate business operations. Examples of front companies used by human traffickers for labor or sex trafficking include massage businesses, escort services, bars, restaurants, and cantinas. In the case of businesses that act as a front for human trafficking, typically the establishment appears legitimate with registrations and licenses. The front company generates revenue from sales of alcoholic beverages and cover charges. Patrons, however, also can obtain illicit sexual services from trafficked individuals, usually elsewhere in the establishment. In addition, illicit massage businesses or nail and hair salons can offer sexual services under the guise of legitimate businesses and/or exploit individuals for the purpose of forced labor. Often, these establishments will appear to be a single storefront, yet are part of a larger network. Payments for these illicit services are usually in cash, and traffickers may invest the illicit proceeds in high-value assets, such as real estate and cars.
2. Exploitative Employment Practices
Some seemingly legitimate businesses use exploitative employment schemes, such as visa fraud and wage retention, to amass profit from labor and sex trafficking. For instance, some labor recruiters mislead or defraud victims, taking advantage of workers before and after they enter the United States. Some labor recruiters also mislead workers about the conditions and nature of a job, engage in contract switching, and confiscate or destroy workers’ identity documents. Foreign nationals who have legitimate temporary work or student visas also can be exploited.
Another common practice is to charge exploitative fees to workers by withholding their salary or paying less than promised. The trafficker claims that the fees cover the costs of recruitment or access to job opportunities. Recruitment fees can range from hundreds of dollars to tens of thousands of dollars, and take years to repay. Victims’ salaries are transferred to the traffickers or their co-conspirators via teller checks or wire transfers.
Proceeds also can be “disguised” as a legitimate business expense, such as a cleaning service. Financial institutions may see multiple employees receiving their salaries in the same account, or payment for employment may be followed by immediate withdrawal or transfer into another account.
3. FunnelAccounts
Funnel accounts generally involve an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals. Human traffickers may use interstate funnel accounts to transfer funds between geographic areas, move proceeds rapidly, and maintain anonymity. In labor and sex trafficking schemes, human traffickers may open
accounts in their name, or escort victims to a bank, and force them to open an account.
Traffickers maintain control of the victims’ bank accounts through coercion, and direct victims to deposit money into their accounts and other accounts that the traffickers can access. In some cases, victims also are coerced or forced to wire proceeds via money services businesses (MSBs) to facilitate the funneling of proceeds.
4. Alternative Payment Methods
In addition to payment via cash, traffickers also have accepted payment via credit cards, prepaid cards, mobile payment applications, and convertible virtual currency. Buyers of commercial sex use prepaid cards—a method of payment using funds paid in advance, which can be acquired anonymously with cash or on darknet websites—to register with escort websites and to purchase sexual services, flights, throw-away phones, and hotel rooms.
Illicit actors also use virtual currency to advertise commercial sex online. For example, human traffickers have purchased prepaid cards, and then used the cards to purchase virtual currency on a peer-to-peer exchange platform. Human traffickers then use the virtual currency to buy online advertisements that feature commercial sex acts to obtain customers.
FinCEN also has identified transactions in which human traffickers use third-party payment processors (TPPPs) to wire funds, which gives the appearance that the TPPP is the originator or beneficiary of the wire transfer and conceals the true originator or beneficiary. For example, human traffickers facilitate payments via TPPPs for the operation of online escort services and online streaming services that use voice-over Internet protocol technology. Human traffickers and their facilitators use TPPPs to wire funds to individuals or businesses both domestically and abroad.
Additionally, that section has two case studies: one on funnel accounts, and one on prepaid cards and Bitcoin.
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