ANALYSIS: Human trafficking – including forced labor and sex trafficking – is a growing crime, but often an invisible one. Your members could be involved, as victims or perpetrators, and your staff may be in a unique position to help spot it.
This Courier provides resources and tips to help your credit union do all it can to identify and report these crimes.
What is “human trafficking”?
According to the U.S. Attorney for the Western District of Wisconsin, “human trafficking is a crime involving the exploitation of a person for labor, services, or commercial sex, through the use of force, fraud, or coercion that is physical and/or psychological. The exploitation of a minor for commercial sex is human trafficking regardless of whether any form of force, fraud, or coercion is used by the trafficker.”
Polaris, a non-profit dedicated to fighting human trafficking, defines sex trafficking as including:
- Escort services: Commercial sex acts that primarily occur at temporary indoor locations and includes hotel-based operations, internet ads, and out-calls to buyers.
- Residential sex trafficking: Call-in commercial sex occurring at a non-commercial residential location.
- Illicit massage businesses: Primary business of sex and labor trafficking is concealed under the facade of legitimate spa services.
- Outdoor solicitation: Potential victims are forced to find commercial sex buyers in outdoor locations such as on “tracks,” or “strolls,” or at truck stops.
- Pornography: Pre-recorded sexually explicit videos and images, including child pornography. This can include informally distributed pornographic material or commercial sex through a formal pornography company.
Labor trafficking includes:
- Agriculture and animal husbandry: A farming business in which potential victims are exploited for their labor in growing/maintaining crops, cultivating soil, or rearing animals.
- Domestic work: Where an individual works for one specific household/family providing personal household tasks, cleaning, childcare or adult caretaking, often living onsite with the family.
- Construction: Potential victims are exploited for their labor in carpentry, masonry, painting, roofing, etc.
- Restaurants and food service: Potential victims are exploited for their labor as servers, bussers, dishwashers, cooks, etc.
- Hospitality: Potential victims are exploited for their labor as hotel housekeepers, front desk attendants, bell staff, etc.
These crimes can happen in your credit union’s backyard
“Globally, an estimated 24.9 million people are subjected to human trafficking, which generates an estimated $150 billion annually in illicit profits,” the White House says.
But human trafficking and child sexual exploitation aren’t just problems “somewhere else.” They happen right here in Wisconsin, in cities and rural areas.
But human trafficking and child sexual exploitation aren’t just problems “somewhere else.” They happen right here in Wisconsin, in cities and rural areas.
- According to the Wisconsin Department of Children and Families, “Sex trafficking occurs throughout Wisconsin in cities, suburbs, and rural areas.”
- One of Wisconsin’s U.S. Attorney’s offices notes that “Human trafficking is a despicable crime that is happening, unfortunately, right here in Wisconsin.”
- According to the Wisconsin Bar Association, “Wisconsin has a reputation for being in the top five states for human sex trafficking. While Milwaukee is considered a trafficking hub, the problem of sex trafficking exists even in small communities, though the exact numbers are hard to determine.”
- And this 2020 American Bankers Association article stresses that “You could be encountering human trafficking in your backyard – no matter where you live or the size of your financial institution.”
The importance of BSA filings
Recently, FinCEN, the U.S. Treasury department responsible for Bank Secrecy Act (BSA) regulations, reported a significant spike in Suspicious Activity Reports (SARs) relating to the use of cryptocurrency to finance human trafficking and online child sexual exploitation (OCSE). For example, the number of BSA reports related to OCSE and human trafficking that involved “convertible virtual currency,” like bitcoin, increased from 336 in 2020 to 1,975 in 2021, FinCEN said.
FinCEN’s findings highlight the value of prompt and accurate BSA reporting by credit unions and other financial institutions. In a press release, FinCEN Director Andrea Gacki called on financial institutions to stay vigilant. “Human traffickers and perpetrators of related crimes despicably exploit adults and children for financial gain,” she said. “Financial institutions’ vigilance and timely reporting is critical to providing law enforcement agencies with the information needed to investigate potential cases of human trafficking, sexual crimes against children, and related crimes. This reporting ultimately helps law enforcement protect and save innocent lives.”
As you know, BSA requires credit unions to monitor for and report suspected illegal activity. (See ii Release No. 0109 for details on SAR filing requirements.) This includes reporting suspected human trafficking and other crimes, along with related money laundering. The U.S. Treasury “identifies the most significant money laundering crimes in the United States are linked to fraud, drug trafficking, cybercrime, human trafficking, human smuggling, and corruption.”
In developing your risk-based procedures for BSA compliance, all credit unions should consider the risk of transacting business with traffickers or their victims.
This 2020 U.S. State Department Report to Congress offers these two “best practices” for financial institutions:
FinCEN’s findings highlight the value of prompt and accurate BSA reporting by credit unions and other financial institutions. In a press release, FinCEN Director Andrea Gacki called on financial institutions to stay vigilant. “Human traffickers and perpetrators of related crimes despicably exploit adults and children for financial gain,” she said. “Financial institutions’ vigilance and timely reporting is critical to providing law enforcement agencies with the information needed to investigate potential cases of human trafficking, sexual crimes against children, and related crimes. This reporting ultimately helps law enforcement protect and save innocent lives.”
As you know, BSA requires credit unions to monitor for and report suspected illegal activity. (See ii Release No. 0109 for details on SAR filing requirements.) This includes reporting suspected human trafficking and other crimes, along with related money laundering. The U.S. Treasury “identifies the most significant money laundering crimes in the United States are linked to fraud, drug trafficking, cybercrime, human trafficking, human smuggling, and corruption.”
In developing your risk-based procedures for BSA compliance, all credit unions should consider the risk of transacting business with traffickers or their victims.
This 2020 U.S. State Department Report to Congress offers these two “best practices” for financial institutions:
- Financial institutions that comply with their BSA obligations by filing SARs, Currency Transaction Reports (CTRs), or other filings play a key role in law enforcement’s ability to combat human trafficking. Financial institutions are encouraged to utilize the checkbox in the SAR form and SAR narrative keywords to report suspicious activity potentially tied to human trafficking.
- Financial institutions that have established anti-money laundering (AML) programs that properly identify indicia of human trafficking, whether sex trafficking, child sex trafficking, forced labor, or forced child labor, are critical to law enforcement’s efforts to combat human trafficking. Engagement with survivors of trafficking could enhance the ability of AML professionals to detect human trafficking transactions.
Update your BSA policy & procedures
It’s critical that credit unions keep their BSA/AML policies and procedures up-to-date, as human trafficking evolves and transaction methods change. This is not something you can do once and forget about. As one compliance consulting company points out: “[F]inancial institutions are going to need to update their transaction monitoring models to ensure they are able to detect and report money laundering related to sex trafficking. … Financial institutions are going to need to ensure that transaction monitoring models evolve to address the increasing risks of traffickers’ use of cryptocurrency and the darknet.”
As larger banks have adopted more and more sophisticated BSA processes to fight human trafficking, criminals are exploiting smaller institutions, like community banks and credit unions, according to this legal blog. That increases legal risks, since a federal law called the “Trafficking Victims Protection Act,” can impose liability on financial institutions that, even unknowingly, benefit from human trafficking if they “should have known” about the exploitation.
As larger banks have adopted more and more sophisticated BSA processes to fight human trafficking, criminals are exploiting smaller institutions, like community banks and credit unions, according to this legal blog. That increases legal risks, since a federal law called the “Trafficking Victims Protection Act,” can impose liability on financial institutions that, even unknowingly, benefit from human trafficking if they “should have known” about the exploitation.
Staff training is critical
Credit unions – and especially their front-line staff – have a special role to play in fighting human trafficking. But they need training to know the “red flags” to watch for. You can’t file a SAR if you don’t notice telltale signs that human trafficking is going on.
That 2020 State Department report included recommendations for financial institutions. For example, training programs could include:
That 2020 State Department report included recommendations for financial institutions. For example, training programs could include:
- How to identify transactions, series of transactions, or patterns of activity by their members that may be indicators of human trafficking;
- Member due diligence;
- Behavioral indicators;
- Transactional indicators;
- Being sensitive to and engaging with trafficking victims;
- Onboarding due diligence;
- Red flags;
- How to identify an individual or corporate member that could be involved with human trafficking activities, either as victim or perpetrator;
- How and when to intervene, for example, how to determine whether there is a third party that has control over the victim, and whether forced criminality exists;
- Highlighting the importance of understanding the nature of the underlying crime and merge it with their understanding of BSA investigations;
- Discussion of all forms of human trafficking, including labor trafficking/forced labor;
- Engaging with subject-matter experts from anti-trafficking NGOs and the survivor leader community, and
- Developing public-private partnerships with government, anti-trafficking NGOs, and survivor leaders to inform their programs further – including by developing risk indicators for identifying members that are human trafficking victims and perpetrators.
For help spotting the red flags, behaviors, transactions and other activity that might indicate human trafficking, see this 2014 FinCEN Advisory and the agency’s 2020 Supplemental Advisory.
In 2014, FinCEN suggested that financial institutions watch for:
In 2014, FinCEN suggested that financial institutions watch for:
- Substantial deductions to wages, where the employee only receives a small fraction of their wages;
- Transactions are conducted by individuals escorted by a third party, sometimes under the pretext of requiring an interpreter, to transfer funds to other countries;
- Frequent transactions that are inconsistent with the expected activity and which appear to provide sustenance for many individuals (i.e., payment for housing, lodging, regular vehicle rentals, purchases for large amounts of fast food);
- Payments to employment or student recruitment agencies that are not licensed / registered or that have labor violations;
- Address of a business is an apartment complex;
- Multiple unrelated people living at the same address;
- Rent payments for multiple locations within apartment complexes.
In 2020, the agency added more “red flags,” including these:
- Customers frequently appear to move through, and transact from, different geographic locations in the United States. These transactions can be combined with travel and transactions in and to foreign countries that are significant conduits for human trafficking.
- Transactions are inconsistent with a customer’s expected activity and/or line of business in an apparent effort 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.
- Transactional activity largely occurs outside of normal business operating hours (e.g., an establishment that operates during the day has a large number of transactions at night), is almost always made in cash, and deposits are larger than what is expected for the business and the size of its operations.
- A customer frequently makes cash deposits with no Automated Clearing House (ACH) payments.
- An individual frequently purchases and uses prepaid access cards.
- A customer’s account shares common identifiers, such as a telephone number, email, and social media handle, or address, associated with escort agency websites and commercial sex advertisements.
- Frequent transactions with online classified sites that are based in foreign jurisdictions.
- A customer frequently sends or receives funds via cryptocurrency to or from darknet markets or services known to be associated with illicit activity. This may include 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.
- Frequent transactions using third-party payment processors that conceal the originators and/or beneficiaries of the transactions.
- A customer avoids transactions that require identification documents or that trigger reporting requirements.
FinCEN also listed certain “behavioral indicators” of human trafficking and advised: “As appropriate, such information should be incorporated into Suspicious Activity Report (SAR) filings and/or reported to law enforcement. When incorporated into SAR filings, it is important that behavioral indicators, and the staff who witnessed them, are included in the SAR narrative so that information may be effectively searched for, and later used by, law enforcement.” Those behavioral indicators are:
- A third party speaks on behalf of the customer (a third party may insist on being present and/or translating).
- A third party insists on being present for every aspect of the transaction.
- A third party attempts to fill out paperwork without consulting the customer.
- A third party maintains possession and/or control of all documents or money.
- A third party claims to be related to the customer but does not know critical details.
- A prospective customer uses, or attempts to use, third-party identification (of someone who is not present) to open an account.
- A third party attempts to open an account for an unqualified minor.
- A third party commits acts of physical aggression or intimidation toward the customer.
- A customer shows signs of poor hygiene, malnourishment, fatigue, signs of physical and/or sexual abuse, physical restraint, confinement, or torture.
- A customer 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.
Contacting law enforcement
In addition to filing a SAR, FinCEN asks those who suspect human trafficking to immediately contact law enforcement.
- To report suspected human trafficking to federal law enforcement, call 1-866-347-2423.
- You can also call the National Human Trafficking Hotline (operated by Polaris) at 1-888-373-7888. Some credit unions post this number in their lobbies and restrooms. Others also post material from Homeland Security’s Blue Campaign to help trafficking victims.
- This “Indicators & Response Guide,” published by the Wisconsin Department of Children & Families, should be consulted if you have concerns that a child or youth you have been in contact with is being sexually trafficked or exploited. The guide includes contact information for each county and tribe in the state to make a report.