International Regulatory Enforcement (PHIRE)
Recent FinCEN Advisory Targets Recognition of Human Trafficking
By Jon Drimmer, Tara Giunta, and Renata Parras
As part of a growing focus on financial institutions and modern slavery, the Financial Crimes Enforcement Network (FinCEN) recently issued
FinCEN’s most recent Advisory, the result of collaboration with law enforcement, provides new information – much of which is directed toward customer facing personnel - to assist financial institutions in identifying and reporting human trafficking. It also provides two recent case studies as further practical guidance. It does not supersede the 2014 guidance, but rather identifies 20 new financial and behavioral indicators of labor and sex trafficking, and four additional typologies.
The new typologies include:
Front companies (businesses that hide the true nature of a business and its illicit activities, combining illicit proceeds with proceeds from legitimate business operations);
Exploitative employment practices (seemingly legitimate businesses that rely on employment schemes, such as visa fraud and wage retention, to profit from labor and sex trafficking);
Funnel accounts (individual or business accounts in one location that receive multiple cash deposits, often below reporting thresholds, from which the funds quickly are withdrawn in different areas with little time between deposit and withdrawal); and
Alternative Payment Methods (cash, credit cards, prepaid cards, mobile payment applications, and convertible virtual currencies).
The red flags identified include 10 behavioral indicators associated with third parties or customers:
A third party:
speaks on behalf of the customer (or insists on being present and/or translating);
insists on being present for every aspect of the transaction;
attempts to fill out paperwork without consulting the customer;
maintains possession and/or control of all documents or money;
claims to be related to the customer, but does not know critical details;
attempts to open an account for an unqualified minor; or
commits acts of physical aggression or intimidation toward the customer.
A customer or prospective customer:
uses, or attempts to use, third-party identification (of someone who is not present) to open an account;
shows signs of poor hygiene, malnourishment, fatigue, signs of physical and/or sexual abuse, physical restraint, confinement, or torture; or
shows a lack of knowledge of their whereabouts, cannot clarify where they live or where they are staying, or provides scripted, confusing, or inconsistent stories in response to inquiry.
10 red flags of financial indicators also appear, when a customer:
appears to move through, and transact from, different geographic locations, particularly foreign countries that are conduits for human trafficking;
makes cash deposits with no Automated Clearing House (ACH) payments;
purchases and uses prepaid access cards;
engages in transactions inconsistent with the customer’s expected activity and/or line of business, in an attempt to cover trafficking victims’ living costs, including housing (e.g., hotel, motel, short-term rentals, or residential accommodations), transportation (e.g., airplane, taxi, limousine, or rideshare services), medical expenses, pharmacies, clothing, grocery stores, and restaurants (to include fast food eateries);
transacts largely outside of normal business operating hours, almost always made in cash, and deposits are larger than expected for the business and the size of its operations;
has an account that shares common identifiers, such as a telephone number, email, and social media handle, or address, associated with escort agency websites and commercial sex advertisements;
transacts with online classified sites that are based in foreign jurisdictions;
frequently sends or receives funds via cryptocurrency to or from “darknet” markets or services known to be associated with illicit activity, such as services that host advertising content for illicit services, sell illicit content, or financial institutions that allow prepaid cards to pay for cryptocurrencies without appropriate risk mitigation controls;
frequently transacts using third-party payment processors that conceal the originators and/or beneficiaries of the transactions; or
avoids transactions that require identification documents or that trigger reporting requirements.
The Advisory also includes examples of funnel accounts in Thailand, and trafficking involving prepaid cards and Bitcoin to further illicit activity. It concludes with a reminder of FinCEN’s Customer Due Diligence (CDD) Rule that as financial institutions, they must obtain identification and verification of beneficial owners of legal entity customers, may share information under the safe harbor authorized by the USA PATRIOT Act, and are required to file SARs if they know or suspect that a transaction involves funds derived from illegal activity.
Although the Advisory builds upon the prior FinCEN advisory, the detail in the Advisory will no doubt warrant adjustments for some financial institutions. That may include enhancing current training materials, increasing training programs directed toward customer facing personnel, and adjusting existing processes designed to detect and prevent trafficking activities.