Written by Daniel Lane, CFE, on behalf of the Anti-Human Trafficking Intelligence Initiative (ATII)

Part 2 of a 3 Part #FollowMoneyFightSlavery Blog Series

Tracing the Traffickers: Banking Red Flags

Introduction

As Human Traffickers continue to spread their destructive roots across the globe, law enforcement’s relationship with the private sector has evolved into one with major partnerships and information sharing channels. In part 1, the major Federal Law Enforcement Agencies and their methods in combating Human Trafficking were highlighted. But they are not alone in this fight. Lawmakers, not-for-profit organizations, and financial institutions all play critical roles in identifying, apprehending, and prosecuting human traffickers.

Financial institutions provide human traffickers the means of handling the most important part of their operations; their money. Historically, financial institutions assist law enforcement agencies in their investigations into narcotics trafficking, bribery and corruption, and fraudulent transactions using the U.S. Treasury's Financial Crimes Enforcement Network's (FinCEN) Suspicious Activity Reporting Form 111 (SAR) and Currency Transaction Reporting Form 112 (CTR). [1] These forms, required to be filed under the Bank Secrecy Act (BSA), provide vital information related to suspicious activity and promote inter-institutional and law enforcement collaboration.

FinCEN SAR Form Update (2018)

As a result of the increased human trafficking threat to the United States, FinCEN unveiled several changes to the SAR form in June 2018. The updates included changes to Part II Box 35 ‘Suspicious Activity Information’ that allows the reporting institution to select the type of suspicious activity(ies) to be included in the report. ‘Human Trafficking’ and ‘Human Smuggling’ were added as options along with ‘transaction(s) involving foreign high-risk jurisdiction’. [2] The addition of these terms is evidence that FinCEN and the U.S. Government are taking serious measures to identify and disrupt trafficking operations through trackable reporting requirements.

Per FinCEN’s SAR Stats online reporting tool, there were 878 total SARs filed in the latter half of 2018 with ‘Human Smuggling’ and/or ‘Human Trafficking’ options selected that included all types of reporting institutions (i.e. depository or money service business) located within all U.S. states and outlying territories. The amount of filed SARs increased substantially in 2019 to 9,881 and within the first 6 months of 2020, 2,472 SARs related to human trafficking and smuggling have been filed providing priceless information for law enforcement investigations. [3]

* FinCEN provided the updated SAR Form to include Human Trafficking and Human Smuggling in June 2018 for discrete (single form submission) filers and batch (aggregated form submission) filers were given until January 1, 2019 to implement the required XML specification. [4]

Banking Red Flags

So, now that FinCEN has issued updated SAR reporting forms, and ratcheted up their enforcement efforts what exactly should financial institutions, specifically banks, be looking for when it comes to suspicious activity? Well, over the past several years, FinCEN and professional organizations alike have published advisories that detail specific transactional patterns compliance staff (both Anti-Money Laundering and Fraud Departments) should be monitoring for. Some of the red flags outlined by the Association of Certified Anti-Money Laundering Specialists (ACAMS) include: [5]

  • A high volume of deposits into 'funnel' accounts followed by immediate withdrawals from towns bordering Mexico and Canada
  • Frequent ATM/credit card transactions in even amounts during late-night hours
  • Use of anonymous monetary instruments (i.e. Cryptocurrency) to pay bills/invoices instead of personal checks
  • Sudden shifts in business accounts outside of the customer’s expected activity

In an Advisory issued in 2014, FinCEN disseminated useful guidance in identifying and reporting financial transactions connected to human trafficking and smuggling. The red flags issued by FinCEN are more descriptive and include: [6]

  • Cash deposits or wire transfers are kept below $3,000 or $10,000 in an attempt to avoid internal reporting or a filing of CTRs
  • Frequent outgoing wire transfers lacking an apparent business or lawful purpose, especially those directed to a known high-risk country
  • Unusual transactional patterns that include multiple hotel expenses in a single day, numerous taxi/rideshare payments and high amounts of transactions at bars and restaurants
  • Multiple and unrelated parties sending wire transfers to the same beneficiary. Wire information may be similar in each wire to include a common address or phone number
  • Deposits are significantly greater than that of peers in a similar profession/business line/geographic area

Like any other illicit activity, financial institutional compliance staff responsible for SAR and other reporting should take a holistic approach to investigate potential human trafficking activity. The presence of one of the red flags is not necessarily an indicator of illegal activity. But if there is an apparent pattern of several red flags for several weeks or months, it may require the filing of a SAR(s) to FinCEN.

It should also be noted that a bank's responsibilities do not end with the submission of the SAR. The purpose of these forms is to assist law enforcement investigations, which oftentimes are months or years long and require the coordination of multiple agencies. A significant amount of time may pass before a SAR becomes important to an investigation. If a law enforcement agency does include the information from a submitted SAR in their investigation, they may require an update on the subject(s) or transaction(s) in the report. In this instance, the reporting institution should make every effort, within the law and internal policy of course, to produce all information requested by law enforcement.

Conclusion

Human Traffickers exploit millions of people every year to generate nearly $150 billion in illicit cash annually. As traffickers’ efforts to elude law enforcement continue, open communication between investigators and financial institutions will prove to be the difference-maker. Financial institutions will only increase their reporting of human trafficking related activity and coupled with the amplified enforcement efforts from law enforcement, human traffickers will finally feel what it is like to be their victims; Miserable. After all, when the mission is #FollowMoneyFightSlavery, a collaborative investigative approach provides the greatest probability for victim recovery and justice served!

List of References:

https://www.fincen.gov/resources/filing-information
https://www.compliancecohort.com/blog/revised-sar-form

[1] https://www.fincen.gov/resources/filing-information
[2] https://www.compliancecohort.com/blog/revised-sar-form
[3] https://www.fincen.gov/reports/sar-stats
[4] https://www.americanbanksystems.com/suspicious-activity-form-updated-fincen/
[5] https://www.acams.org/aml-resources/human-trafficking/
[6] https://www.fincen.gov/sites/default/files/advisory/FIN-2014-A008.pdf

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