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Helping to Save Lives – FinCEN Takes the Lead in Battling Human Trafficking Amid COVID-19

Carol Beaumier, Senior Managing Director Risk and Compliance – New York

Note. Carol Beaumier serves as an Advisory Board Member for the Anti-Human Trafficking Intelligence Initiative.

Over the months that COVID-19 has been gripping the world, FinCEN has issued several advisories informing the financial services industry of the heightened risks of the current environment. These have addressed topics ranging from fraudulent sales of personal protective equipment and fake COVID-19 cures to illicit schemes for taking advantage of government loan assistance and other government benefit programs. On October 15, 2020, FinCEN issued another advisory (FIN-2020-A008), Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity. This follows an advisory issued by FinCEN in 2014 (FIN-2014-A008), Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags.

Human trafficking, as defined in the recent FinCEN advisory, is the act of recruiting, harboring, transporting, providing or obtaining a person for forced labor or commercial sex acts through the use of force, fraud or coercion. The scale and impact of human trafficking – reportedly the most violent and profitable form of international crime – are unfathomable. Available statistics suggest that between 600,000 and 800,000 people are trafficked annually and nearly 40 million people are living in slavery today, predominantly women and girls. While some may think of human trafficking as a problem of the developing world, that is not the case. It is estimated, for example, that 50,000 people are trafficked in the United States annually.

COVID-19 has only exacerbated the risks for helpless victims. This led FinCEN to state starkly that the purpose of FIN-2020-A008 is “to help save lives, and protect the most vulnerable in our society from predators and cowards who prey on the innocent and defenseless for money and greed.” Other regulatory releases, no matter how important, simply don’t deal with stakes this high.

A recent blog post published by the Council on Foreign Relations highlights some of the pandemic-related circumstances that have increased the risks of human trafficking. These circumstances include the following:

  • At the height of the lockdown, school closures in 194 countries affected 90 percent of the world’s students at the pre-primary, primary, secondary and tertiary education levels, depriving children most at risk from the social intervention that may be their lifeline.
  • Traffickers who use drugs to lure their victims are finding it easier to engage with younger victims without the protection and social intervention of schools.
  • Young women who cannot afford to pay their rents, or are financially vulnerable, are being subject to sextortion by their landlords.
  • Individuals who managed to leave their human traffickers are now considering – or are being forced to – return to their exploiters since they have lost their jobs and medical insurance and the shelters that used to support former trafficking victims are shutting down due to lack of funding. 

The blog post concludes that multidisciplinary intervention is needed to address human trafficking in a pandemic-ravaged world. Financial services companies, as the FinCEN advisories make clear, can and should play an important role in detecting human trafficking.

In FIN-2020-A008, FinCEN shares learnings from its collaboration with law enforcement since 2014, specifically highlighting 20 new financial and behavioral indicators, or red flags, of trafficking and four new typologies. The red flags supplement those included in FinCEN’s 2014 advisory, which remain relevant. The typologies address:

  1. Use of front companies to disguise the true nature of the trafficking business and protect the identity of owners and associates. These front companies, which are often cash-based, may generate legal as well as illicit revenue, making it easier to launder funds. Frequently, these front companies will appear to be single establishments, but are actually part of a larger network. Cash proceeds are often used to invest in high-value assets, such as real estate and cars.
  2. Use of exploitive business practices, such as visa fraud or confiscation of work documents, and withholding of salary, allegedly to cover the costs of recruitment, which can take years to repay. Financial institutions may see multiple employees receiving salaries in the same account or the immediate withdrawal of a salary payment into another account.
  3. Use of funnel accounts that receive individual or business deposits, often below the currency reporting limit, in one jurisdiction, with withdrawals in different jurisdictions and little time lapsed between the deposits and withdrawals.
  4. Use of alternative payment methods, including credit cards, prepaid cards, mobile payment applications and convertible virtual currency, and/or the use of third-party payment processors, several of which make it easier for traffickers to disguise their identities.

Typologies 1 and 4 are further illustrated by the use of case studies. Finally, FIN-2020-A008 offers guidance on the filing of Suspicious Activity Reports related to human trafficking.

Read the FinCEN Advisory. Help save lives.

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