Banking Can't Turn A Blind Eye To The Human Trafficking-Money Laundering Connection
The COVID-19 pandemic has impacted almost everything in the world, including human trafficking. While the virus hasn't necessarily increased this activity, it has created a distraction from the pervasive problem and allowed it to flourish in new ways.
At the same time, there's a huge connection to money
laundering that many financial professionals may not even be aware of. It's the
methods of money laundering – often to cover up profits made from human
trafficking – that have changed during the pandemic.
Human trafficking is believed to be one of the world's most
lucrative crimes. In fact, in its "2020 National Strategy for Combating
Terrorist and Other Illicit Financing," the U.S. Treasury Department
reported that money laundering linked to human trafficking is one of the
biggest illegal finance threats facing the nation. What's more, the Financial
Crimes Enforcement Network (FinCEN) has found that "the global COVID-19
pandemic can exacerbate the conditions that contribute to human trafficking, as
the support structures for potential victims collapse, and traffickers target
those most impacted and vulnerable."
What has emerged in the past several years is a growing and
vulnerable population. Along with this comes the growth of highly organized
exploitation networks, a significant demand and a banking industry that is
undecided as to whether the discovery of these things is actually part of their
scope.
The state of human trafficking during COVID-19
There hasn't necessarily been an uptick in human trafficking
during the global pandemic; however, COVID-19 has made the aforementioned
vulnerable population even more so. When people become desperate due to
financial hardships, they become natural targets for traffickers. A prime
example is that a lot of human trafficking is taking place within the context
of illegal immigration.
It's essentially a matter of modern-day, indentured
servitude – individuals give money to traffickers or coyotes to get them across
the border but then find themselves indebted for an indeterminate period of
time. In some situations, the traffickers confiscate things like passports and
identification to make it harder for the victims to escape.
The money laundering connection
Money laundering and human trafficking go hand-in-hand.
Trafficking brings in $150 billion annually, according to an estimate cited by
FinCEN. That makes it one of the most profitable crimes in the world. And it’s
a cash game – nobody involved wants a paper trail involving credit card
statements or anything remotely traceable. And that means traffickers have a
boatload of cash that they need to launder!
COVID-19 has increased the amount of cash floating free,
which is a problem for traffickers. Many of the traditional money laundering
businesses like restaurants, stores and those leather purse stores in big
cities that are constantly touting their "going out of business" sale
were closed as a result of lockdowns. Without those businesses to launder their
funds through, traffickers have had to think outside the box and devise new
tactics.
What's happened is that some distressed companies
essentially became shell companies for organized crime. These business owners
struggling economically are easy prey and can too often be convinced of the
potential gains of becoming a money-laundering front.
Banks' facilitation of crime
On the whole, crime has one purpose – to make money. That
money needs to be processed and managed through a financial system. The banks
remain at the center of that system, although the decentralization of finance
will put that model under considerable pressure over the next decade.
Whether intentional or not, financial institutions around the
world are acting as the intermediary between the supply and demand sides of
human trafficking – and that needs to change. Pretending they are successful in
stopping crime because they have checked the box from the regulator, turning a
blind eye to massively profitable cash flows or just not being equipped
sufficiently to find and stop an impressively elusive set of adversaries, are
all causes.
A significant aspect of the problem though is the question
of accountability. Where does the responsibility actually lie? Banks have
plenty of things to address that are clearly their responsibility, and they are
highly unlikely to volunteer for extra work. It's equally too easy for
financial institutions to ignore the situation and pretend they don't have a
role in preventing human trafficking. But the world needs the financial
industry to think of themselves as financial stewards and do their part. And
it's encouraging to see that many are beginning to see this as a moral
imperative and not a regulatory or worse, analytical exercise.
How banks become heroes
To change the status quo and become a stronger force for
good, banks will need to take several actions. As a start, they need to step up
to the plate. It will only take a few of them to make it clear to the world
community that they understand banks are the key to the integrity of the
financial system. More are sure to follow their lead.
If banks are self-regulating, as many claim to do, then they
can lead the charge against human trafficking. Rather than merely complying
with the bare minimum set forth by regulators, they can become more proactive.
Banks could and should have a truly impactful and materially important role in
this fight.
And it's not just some highfalutin moral mission that this
points to. It's good business. The pivot of the market to decentralized finance
(DeFi), democratization of financial transaction with cash and equity apps, and
a slow but steady move to cryptocurrency is an existential threat to the
traditional banking system and its incumbents. But DeFi is incredibly exposed
to exploitation, and in fact, is perfect for it. And here banks can stand as
effective custodians of financial integrity and establish a much stronger and
compelling position when looked at by government and regulatory
decision-makers.
To help in the fight against human trafficking, ICE Homeland
Security Investigations (HSI) has identified multiple red flags that banks can
refer to when considering potentially suspicious activity. These include:
Payments to student or employment recruitment agencies that
are not licensed or registered or that have labor violations
A customer who is always escorted by a third party when
setting up an account or visiting a branch to conduct transactions
Frequent payments to online escort services for advertising
to companies of online classifieds, as well as higher-end advertising and
website hosting companies
Cash deposits in cities and/or states where the customer
does not reside or (allegedly) conduct business
Simple examples but foundational, and the agency discusses
other transactions that could signal human trafficking is taking place and
offers this encouragement to banks and their employees: "You could be the
hero behind the scenes who is helping to rescue individuals from the nightmare
of human trafficking and bringing their tormentors to justice."
To be able to spot odd transaction behavior accurately,
banks need to not just "know" their customer. They need to
"understand" them. This is difficult to do when they are working with
processes, technologies and policies that date back 20 years and that are often
designed to look for crimes that were prevalent in the 1980s and 90s.
They desperately need modern approaches that will help them
understand their customers with intimacy and at scale and stop financial
crimes. This includes AI-based automation that identifies anomalous behavior
that human inspectors would never be able to see. AI and machine learning (ML)
tools enable banks to extract greater intelligence out of existing data to
monitor changes over time and spot emerging patterns that signal potential
problems.
AI has a bad rap at the moment, and it's deserved. Gartner
is right in its estimation that 85% of AI projects will fail – this is largely
due to over-promising, too large marketing budgets and too much alchemy, which
has been the AI market of the last few years. But some firms have genuinely
innovated. Some have truly added the transparency at scale, and the operational
productivity that is so desperately needed to execute on the mission against
the vileness of human trafficking.
Banks as proactive participants
The COVID-19 pandemic has enabled human trafficking to
flourish in new ways, and traffickers have become equally creative as they
launder their profits. Vulnerable populations have exploded and not just in
third world countries. Target exploitation is growing in our own neighborhoods,
on our kids' Xboxes and PS4 messaging, on social media and in the very fabric
of day-to-day life. Anyone with a young child needs to take a serious pause and
understand the risks they face.
Airlines, hotels, transportation companies, and most
particularly, banks must become more vigilant than ever to ensure that they
aren't unwittingly aiding criminals by being the passive financial
intermediary. Banks can lead the fight against trafficking and its tragic
consequences. This requires a commitment against financial crime and the tools
to spot it. Armed with these, financial institutions will truly take their
place in creating a more just and caring society.
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