In Part I of our blog series, we looked at human trafficking through the lens of financial crime. In this segment, we explore how advancements in financial crime technology can help institutions identify and halt human trafficking networks.
The key to human trafficking disruption: Follow financial footprints
Human trafficking networks rely heavily on legitimate financial services entities and infrastructures to conduct their nefarious activities. And they’ve become quite skilled at using these channels to launder funds. Discovering and tracking their financial footprints is key to disrupting trafficking networks. This reality places financial institutions front and center in global efforts to detect and disrupt this heinous crime.
Financial organizations are increasingly focused on strengthening their anti-money laundering (AML) programs and infrastructure. There are many important considerations to ensure that the new environment can support a full range of AML requirements—whether related to human trafficking, terrorism, the drug trade, and more—and can continue to evolve for a future-proof investment.
Seven core capabilities for AML transformation
We explore seven critical capabilities to consider when embarking on the AML program and technology modernization:
1. Advanced typologies and context for red flags: The starting point for effective financial investigations into human trafficking is to identify behavioral and transactional red flag indicators. Relevant red flags are critical for analysts to know what to look for and when to file suspicious activity reports (SARs). Human trafficking indicators can intersect with legitimate financial activities, making them difficult to detect. As such, financial institutions require AML solutions that can integrate indicators with critical contextual information to optimize investigation and reporting accuracy.
2. Support for a risk-based approach to AML programs: Adopting a risk-based approach to AML/CFT programs can help banks and financial institutions effectively identify, assess, and mitigate money laundering risks associated with human trafficking. A proactive AML approach to human trafficking facilitates the creation of risk profiles, typologies, and thresholds in sync with human trafficking indicators. This effectively and efficiently disrupts human trafficking networks and associated money laundering crimes. To achieve this, the financial sector must stay abreast of the global regulatory compliance mandates and procedures concerning human trafficking.
3. Comprehensive screening with continuous due diligence: Institutions must optimize their customer screening process to ensure thorough screening against all global data sources, including sanctions, watchlists, the politically exposed person (PEPs), and adverse media. Alerts should be generated immediately for any potential match against data sources or negative news linked to human trafficking. Additionally, establishing continued due diligence measures to track any transactions associated with front companies, funnel accounts, or money laundering ventures helps to identify the financial trails of traffickers, facilitators, and beneficiaries.
4. Holistic transaction modernization: Traffickers often use alternate payment methods, virtual currencies, mobile applications, and third-party payment processors to make and conceal transactions within the legitimate financial system. The multi-jurisdictional and clandestine nature of associated transactions makes it difficult to identify and detect human trafficking. However, a robust transaction monitoring mechanism can help scrutinize money flows, transaction linkages, and suspicious customers or accounts. Typical red flags related to human trafficking may include large/multiple deposits made and then withdrawn in places close to international borders, multiple accounts with common identifiers, anomalies in account activity, and anonymous instruments used to pay bills. Banks and financial institutions must invest in transaction monitoring systems that can deliver real-time behavioral monitoring, comprehensive surveillance, a holistic view of transactional activities, detection precision, accurate pattern, and anomaly identification, risk-rated high-quality alerts, and lower false positives.
5. Advanced analytics: There is a troubling scarcity of empirical data on human trafficking and associated transactions. Advanced analytics, powered by artificial intelligence, machine learning, and graph analytics, enable financial institutions to find relationships and patterns rapidly and accurately in large volumes of structured and unstructured data of customers, accounts, entities, beneficiaries, transactions, and suspicious networks related to human trafficking. Text analytics and visualization technologies can further help analysts and investigators correlate data, prioritize alerts, and complete investigations faster.
6. Ability to report suspicious activity accurately and rapidly: A US-interagency task force analysis report on AML efforts related to human trafficking confirms that financial institutions may face criminal penalties if they willfully fail to comply with their Bank Secrecy Act (BSA) obligations, including SAR reporting related to human trafficking. They must report indicia of human trafficking when filing SARs with the Financial Crimes Enforcement Network (FinCEN), and the SAR form now has a dedicated field for human trafficking (SAR Field 38(h)). It requests the term “Advisory Human Trafficking” and an explanation of why the reported activity is being considered suspicious when filing the SAR. Now the onus lies with financial institutions to closely monitor customer activity for unusual or suspicious transactions and file SARs diligently. They must invest in regulatory reporting capabilities that automate the SAR creation and filing process with a detailed and quality narrative to assist in further investigation by enforcement agencies.
7. Channels to collaborate and share information seamlessly between and across institutions: Cooperation and information sharing are critical to efforts to detect and prevent human trafficking. Partnerships between various stakeholders—government agencies, law enforcement, financial institutions, non-governmental organizations (NGOs), survivors, and more—can generate compelling intelligence in tracking the financial trails and footprints of trafficking networks. Information about potential bad actors, funnel accounts, funds movement from one institution to another, actionable SAR filings, and more can be very useful in disrupting trafficking networks and associated financial crimes. Timely exchange of information between different financial organizations, or between financial institutions and agencies is critical. However, given privacy laws and liabilities around customer data and related information, organizations must conform to safe harbor and encrypted information sharing requirements.
Bringing it all together to prevent human trafficking
Financial institutions can unwittingly be involved at any stage of the trafficking chain as money is spent, transferred, or laundered. This reality places them at the forefront of the war against human trafficking and induced financial crimes. The sector’s focus on and involvement in disrupting human trafficking has intensified considerably over the last several, and more hard work lies ahead. Financial institutions can no longer be reactive gatekeepers when tackling human trafficking. The costs are simply too high—in the form of fines and devastating reputational damage—if they’re found negligent in detecting or reporting trafficking.
To thwart human trafficking, financial institutions must adopt a holistic anti-financial crime and AML compliance framework that encompasses a top-down commitment; modern and future-proof applications and infrastructure; robust employee training; timely information sharing; and dedication to cross-institutional collaboration.
Oracle is helping financial institutions across the globe elevate their anti-financial crime programs to address ever-changing compliance requirements and embrace their critical role in halting human trafficking networks. Let’s begin a conversation.
Disclaimer: The information, views, and opinions presented hereof by the authors are solely theirs and are for general information only. These do not constitute legal advice; Oracle disclaims and excludes any liability in respect of the contents or for action taken based on this information.