The Financial Action Task Force (FATF) – a global intergovernmental organization that develops policies to combat money laundering and terrorism financing – recently issued new guidance to financial institutions regarding the risk of money laundering stemming from migrant smuggling. In the report released last week, the FATF gave an overview of what has developed into a major international issue, as well as guidelines on how to detect traces of human smuggling and trafficking activities. The FATF is urging both government officials and financial institutions to increase awareness while implementing policies and procedures in line with their current AML/CFT programs to better address this problem.
The timing of the report, titled Money laundering and Terrorist Financing Risks Arising from Migrant Smuggling, appears to coincide with the ongoing Russia-Ukraine military conflict and the current foreign policy and humanitarian complexities that have been highlighted during this unique situation. Historically, political instability and war have been significant driving factors for mass migration. Such has been seen in Ukraine since late February, with many Ukrainian citizens fleeing to surrounding territories as the war has escalated. To their credit, Poland and several other European counties have stepped up to provide a safe haven for countless Ukrainians fleeing for the lives. However these developments have also demonstrated just how difficult it has become to track those entering and leaving different jurisdictions when borders are open.
Varying international immigration laws exist from country to country, and these are generally dependent on a wide variety of factors – the bulk of which pertaining to the prevention of crime. Unless a country chooses to suspend their immigration laws under special circumstances, it is generally illegal to simply cross an international border and live there without going through the proper immigration process. In times of crisis however, global citizens have (and often must) circumvent these regulations and do what they feel is necessary in pursuit of finding a better situation or future elsewhere. Human smugglers capitalize on these unfortunate circumstances by offering to illegally transport these refugees into other countries. These journeys are often perilous, and thus smugglers generally demand considerably large fees for their “services.” Millions upon millions of individuals migrate between countries on an annual basis, with this most recent bloodshed further contributing to these figures. Though it is difficult to put an exact number on the funds derived from the illegal businesses in place to help migrants cross international borders, human smuggling as an “industry” is estimated to be generating over $10 billion a year.1
Despite this monumental figure, many countries simply do not consider this form of smuggling to be a significant money laundering threat, with even fewer holding true data to demonstrate how their current financial safeguards can and have protected against the risks this practice poses. In their report, the FATF reminds financial institutions that they have a very important role to play in the identification of any suspicious transactions that could be tied to these activities, and encourage reporting them to regulators or their respective appropriate government bodies in a timely manner. In order to better identify the signs of such activity, the FATF listed several recommendations to follow in their report. Some of these recommendations are more obvious and include reminders to continue cooperating with both domestic and international government/law enforcement officials as well as other financial institutions for the sake of money laundering prevention. Performing exhaustive due diligence and filing quality reports on suspicious activity also greatly assist law enforcement and provide a much needed stepping stone with respect to tracing criminal financial flows. The FATF also emphasizes the need to carefully examine any activity related to informal money transfer systems. Criminals deliberately use these channels to launder funds because they are often difficult for law enforcement agencies to freeze or cut off, and even more difficult to trace.2
The FATF also reports that as access to personal technology continues to grow around the world, smugglers have capitalized on the use of encrypted messaging applications for both recruitment and coordination of their ploys.2 As such, the regulatory body has also noted that the monitoring of social media content as part of the client onboarding process could be a very helpful practice for firms to adopt. In addition to suites of services that include compliance screening and transaction monitoring, Global RADAR and other AML and risk management software solutions now offer social and adverse media monitoring services that have made the identification of questionable activity and relationships in this regard much easier for the modern financial institution, and have already seen tangible results with respect to thwarting international money laundering efforts as a result of the data collected and the trends analyzed in monitoring these avenues. The FATF claims that smugglers have been using social media as their primary means of recruiting and advertising of their services, with this activity often slipping through the cracks given the lesser priority it is given among financial institutions large and small in relation to their other AML/CFT efforts
As the conflict between Russia and Ukraine continues, more displaced Ukrainians will seek to start a new life in other countries. Many will not go through the appropriate legal processes to do so, and rightfully so given the dire circumstances in which they are mired. It is also a certainty that there will be smugglers seeking to take advantage of this unfortunate situation for personal gain, further compounding the global money-laundering epidemic. Financial institutions would do well to stay vigilant and familiarize themselves with all of the latest recommendations from the FATF.
- “Money Laundering and Terrorist Financing Risks Arising from Migrant Smuggling.” Financial Action Task Force (FATF), Mar. 2022.
- Tokar, Dylan. “Global Finance Watchdog Warns of Risks Posed by Migrant Smuggling.” The Wall Street Journal, Dow Jones & Company, 22 Mar. 2022.