Modern slavery risk: the links between money laundering and human trafficking

Financial institutions are not immune from the scourge of modern slavery in the form of human trafficking. Beyond the very human cost, human trafficking can present money laundering and other corporate liability exposure.

Recognising this issue of concern, the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering (APG) have published a new report – Financial Flows from Human Trafficking – linking money laundering risks and human trafficking.

FATF is an independent, policymaking intergovernmental body that, amongst other priorities, sets standards and promotes measures to combat money laundering. APG is a regional intergovernmental organisation that focuses, for instance, on the implementation of international anti-money laundering (AML) standards.

The 2018 report follows one that FATF published in 2011 studying the link between human trafficking/migrant smuggling and money laundering. In addition to its aim of improving “global understanding of the financial flows associated with the crime of human trafficking,” the 2018 report “provides updated, more granular indicators of financial transactions suspected of laundering the proceeds of human trafficking.”

The 2018 report comprises three main parts:

An overview of the scale and scope of global human trafficking.

The 2018 report cites figures showing that the estimated aggregated proceeds from human trafficking around the world is approximately $150bn, up from the $32bn figure included in the 2011 report – making human trafficking “one of the most significant generators of criminal proceeds in the world.”

The 2018 report emphasises that the proceeds – and accompanying proceed-laundering – from the three categories of human trafficking identified in the 2018 report (for sexual exploitation, for forced labour and for organ removal) are realised in different ways. Financial institutions should thus be aware of, and on the lookout for, potentially different and category-specific types of risk indicators as part of their AML transaction monitoring.

As above, the 2018 report identifies indicators of human trafficking-related money laundering. For example: “Where financial institutions with reporting obligations observe financial activity such as multiple employees being paid into a single account or where wage receipt is followed by rapid withdrawal or onward transfer into single accounts, they should consider assessing the situation to determine if there is a suspicion of laundering the proceeds of human trafficking.”

Effective reporting of suspicious transactions requires effective means of detecting and identifying these transactions; the indicators within the 2018 report may help bridge the gap with respect to transactions related to human trafficking, potentially providing financial institutions and other stakeholders with additional and “more precise” means of assessing money laundering risk.

Challenges and good practices in fighting money laundering from human trafficking. In addition to highlighting the challenges related to detecting human trafficking-related money laundering, the 2018 report identifies good practices towards surmounting these challenges. These good practices include leveraging “expertise, capabilities and information through partnerships between the public sector, private sector, civil society and [non-profit organisation] communities.”

As the report notes, the community of those working to curb money laundering from human trafficking “is large and incredibly diverse, and holds significant information ... If participants are properly coordinated, and information is appropriately shared amongst the community of participants ... then the community’s size, diversity and the information it holds offer an ability to improve effectiveness in efforts to combat” money laundering from human trafficking.

Of course, intergovernmental bodies like FATF and APG are not the only ones identifying human trafficking indicators. For example, in 2014, the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an Advisory to guide financial institutions on how to detect and report suspicious financial activity that may be related to human trafficking.

And money laundering risk is by no means the only one in this space; evolving standards regarding the private sector’s role in the protection of human rights can materially affect the financial sector in a number of ways. The 2018 report itself discusses the crime of human trafficking “both as a money laundering predicate and [as a] potential source of terrorist financing.”

This latest report serves as another reminder that human crime is often coupled with, and accomplished through, financial crime. As a result, financial institutions’ broader regulatory obligations regarding customer due diligence and transaction monitoring can intersect with human rights standards and guidance. In meeting their AML obligations (including through establishing effective AML compliance programs and reporting suspicious transactions), financial institutions can both reduce their financial crime exposure and shed a light on what FATF and APG call the “hidden crime” of human trafficking.