Human trafficking has grown into one of the most lucrative business ventures for criminals across the globe, one with far-reaching, destabilizing effects on the global financial system with regards to illicit finance. Hundreds of billions of dollars are exchanged each year between bad actors and criminal organizations operating in this “trade,” in what has evolved into a modern day form of slavery. While strides continue to be made by international law enforcement agencies, government bodies and non-profit organizations to address this growing global problem, stopping criminal activity of this variety remains an uphill battle. As a result, increased onus has fallen on the greater financial sector, including those operating in the realm of regulatory compliance, to identify red flags and report suspicious activity to the appropriate authorities to slow this cycle.

Human trafficking involves the use of force, fraud, or coercion to obtain some type of labor or commercial sex acts, almost always against the will of the individual(s) being trafficked. While many assume that because this trade is not directly visible in most walks of society (thriving on the international black market and dark-web platforms), it only occurs in under-developed or third world countries. Unfortunately, this ideology could not be further from the truth, and represents one of the many barriers that anti-trafficking bodies must overcome in attempting to hinder this criminal trend. Tens of millions of people, many of whom are children, are currently being trafficked in virtually every country of the world today, with this activity carrying the ability to affect any community, any age group, and any race/ethnicity. In fact, the Americas play a prominent role as both the origin and ultimate destination for victims of this practice.

Due to the extremely high profit margin associated with trafficking and the miniscule risk of being caught based on just how difficult it is to trace this form of cross-border activity, human traffickers have grown increasingly brazen in recent years, laundering their funds through U.S. financial institutions with increasing prevalence while operating in plain sight at far greater rates. While this increased exposure does provide an opportunity for these criminals to be brought to justice, their apprehension can rest in the hands of compliance professionals and risk-management solutions serving to sniff out illicit activity of this very nature. If the current scope of this practice serves any indication, the processes surrounding identifying human trafficking-related financial activity are lacking across the industry.

A report from prominent British defense and security firm BAE Systems published in late October demonstrates just how vulnerable today’s financial service providers are with regard to the handling of dirty money directly derived from human trafficking. Surveying nearly 500 compliance and risk professionals from a number of international jurisdictions to gain their perspective on financial crime impacting their respective organizations, the report was filled with eye-opening figures with respect to human trafficking. 28 percent of those surveyed claimed that financial crimes related to trafficking have caused significant losses at their firms to date, while 36 percent of these professionals said they weren’t confident in their ability to spot red flags for human trafficking in customer transactions.² BAE Systems also found that a whopping 75 percent of the financial institutions included in their survey admitted to a gross lack of confidence in identifying human trafficking activity amongst consumer transactions.² While the above-mentioned figures are staggering, arguably the most surprising finding within the report related to consumer sentiment over their bank’s engagement in fighting this form of crime. Compliance Week writes that the report discovered that “75 percent of customers would drop their bank or financial institution if it did not demonstrate a proactive attitude to fighting money laundering or the unethical practices that facilitate it”⁴ – which should provide all the more incentive for global financial institutions to take a stand against trafficking.

While still a work in progress, some notable changes have begun to unfurl in the financial sector to limit the scope of trafficking and the illicit proceeds of this criminal activity moving forward. In September of 2018, the Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking was born. The Commission, a partnership between the governments of Liechtenstein, Australia and the Netherlands, as well as world banking leaders, and prominent voices in the anti-trafficking movement, aimed at aligning the public and private sectors to better address modern slavery and human trafficking, using the influence of the financial sector over global business as a driving force. Taking into account the knowledge and experiences of this diverse group, the commission put together a comprehensive report (known as the “Blueprint for Mobilizing Finance Against Slavery and Trafficking” FAST)) that provides a framework for financial institutions on how to take action against human trafficking at a pace that best suits their business and the resources available to them.¹ While more widespread international implementation will take time, the FAST Initiative provides a number of tools for financial professionals to utilize as part of their daily practices to better identify and analyze pertinent financial information/risk indicators related to human trafficking. Additional information on the initiative can be found here.

With greater effort and time committed to making improvements in employee awareness and training on how to identify and report human trafficking, the global financial sector can play a leading role in not only limiting the spread of illicit finance, but in saving lives of innocent victims of this inhumane practice. Ignoring this problem has fatal consequences for both victims and potentially for institutions of varying sizes. As such, a top-down, proactive approach to bring anti-trafficking safeguards up to par with that of AML/CFT would go a long way towards assisting law enforcement and government bodies in limiting the spread of this activity, while also decreasing risk of monetary and reputational losses for financial institutions around the world.

For a comprehensive perspective on human trafficking as it relates to the financial sector and regulatory compliance, download Global RADAR’s free eBook: The Art of Money Laundering.

Weekly Roundup

Apple’s Chief Security Officer Tried on Bribery Claims

 The global head of security for world-renowned technology and electronics staple, Apple Inc., was indicted by a grand jury last week in relation to alleged bribes offered by the executive to two members of the Santa Clara (CA) County Sheriff’s office who are also facing trial. A two year investigation led by the Santa Clara County District Attorney’s office into improprieties at the sheriff’s office revealed that police Undersheriff Rick Sung and Captain James Jensen abused their power by halting the issuance of concealed firearms licenses until applicants exchanged cash/items of value for them. Caught in the scandal was longtime Apple CSO Thomas Moyer, who “is accused of promising Apple would donate 200 iPads, at a value of nearly $70,000, to the sheriff’s office in order to obtain four CCW licenses withheld from Apple employees.”³ The arranged tradeoff ultimately fell through in its final stages when the two aforementioned police officials became aware of a search warrant executed by the DA’s office that effectively seized all of the weapons licenses in the office’s possession.

While Moyer’s legal representation has denied the validity of the claims against their client, and Apple too has publicly backed their employee. An internal investigation carried out by the firm into the allegations discovered no credible evidence of wrongdoing on Moyer’s behalf. Nevertheless, the three defendants are set for arraignment on January 11^th, 2021 and could face prison sentences if convicted.

JPMorgan Fined Millions for Lax Internal Controls

 Last Tuesday, the U.S. Office of the Comptroller of the Currency (OCC) fined JPMorgan Chase Bank a staggering $250 million for deficiencies in the company’s internal controls and risk management protocols. The OCC ultimately ruled that the bank’s risk management practices were deficient as a whole, and lacked the safeguards needed to avoid conflicts of interest within its advisory business. The American Banker writes that the OCC “found that for ‘several years’ JPMorgan had a ‘weak’ management and control program for that business line and an ‘insufficient’ auditing program to catch any problems.”⁵ JPMorgan has worked to address these shortcomings in the months since these issues came to light, and was able to avoid admitting guilt on the matter as part of the settlement agreement struck with the federal regulator.

While hefty in its own right, the penalty pales in comparison to the $920 million fine the banking conglomerate paid to the Commodity Futures Trading Commission (CFTC) earlier this fall for market manipulation with respect to precious metals and securities.

European Union to Unveil Potent AML “Action Plan”

Early this month, the Council of the European Union (EU) announced the approval of a novel Action Plan, incorporating a unified, comprehensive approach to the prevention of money laundering and terrorist financing moving forward. Sophisticated criminal financial activity has run rampant across several European jurisdictions in recent years (see the ongoing fallout from the Danske Bank and other major cases). As such, the Council believes that the identified weaknesses in enforcement/prosecution of said activity, as well as all loopholes found in legislation across the respective borders of the EU’s 27 member states, must be corrected sooner rather than later and has set its sights on righting the EU’s collective AML/CFT framework as we continue into a new era of banking.

The EU’s chief economics and finance ministers set out to provide the European Commission – the EU’s executive branch – with “guidance in advance of its legislative proposals in 2021 on a single rule book, EU-level supervision and a coordination and support mechanism for member states’ financial intelligence units.”⁶ The goal of said measure is to unify EU members from a regulatory perspective, providing them improved oversight and harmonizing obligatory financial laws across the entirety of the Union. The hope is that such changes would allow for improvements in data collection and the sharing of intelligence across state lines, increasing the power of cross-border money laundering investigations and perhaps thwarting white-collar crime at a far greater rate than at present.

Citations

1. “Finance Against Slavery and Trafficking .” Liechtenstein Initiative , 19 Feb. 2020.
2. “The Global State of Anti-Money Laundering.” BAE Systems | Managed Security Services, Oct. 2020.
3. Jaeger, Jaclyn. “Apple’s Chief Security Officer (and Former CCO) Accused of Bribery.”Compliance Week, 24 Nov. 2020.
4. Plenderleith, Jake. “Is Human Trafficking Financial Services’ Blind Spot?” Compliance Week, 20 Oct. 2020.
5. Prior, Jon. “JPMorgan Fined $250 Million for Problems in Advisory Business.”American Banker, American Banker, 24 Nov. 2020.
6. “Video Conference of Economics and Finance Ministers, 4 November 2020.” European Council | Council of the European Union, 4 Nov. 2020.