“Human trafficking is not a problem that law enforcement can tackle alone. It requires the close collaboration with many concerned groups looking at this crime through different lenses.”
(Manhattan District Attorney Cyrus Vance Jr.)
Manhattan District Attorney Cyrus Vance advocates that financial institutions “can flag suspicious activity and transactions that may assist in identifying a trafficker who otherwise would have gone undetected”. DA Vance has indicated that “with the help of banks and other financial institutions, my Office has been able to secure convictions against traffickers without having to rely solely on the testimony of victims who often suffer emotional, physical, or sexual abuse.”
This article highlights the prevalence of human trafficking in the U.S. and provides a detailed list of 27 Financial Red Flags which were produced by the “Bankers Alliance Against Trafficking” and shared with the industry to help identify and report irregularities in financial transactions that might be linked to human trafficking activity.
10 Randomly Selected Law Enforcement Stings Totalling More Than 1600 Arrests Provide an Inarguable Proof Point that Human Trafficking in the U.S. Is a Major Problem
Law enforcement agencies often give code names to their initiatives to apprehend those involved in human trafficking. The ten stings noted below represent just a fraction of the arrests associated with this horrific crime that occur on an ongoing basis across the U.S.
Operation Travelling Circus – 400 arrests (March 2016)
Operation Watchful Guardians – 36 arrests (Feb. 2016)
Operation Reclaim and Rebuild – 198 arrests (Jan. 2016)
Operation Naughty, Not Nice – 95 arrests (Dec. 2015)
Operation Cross Country IX – 153 arrests (Oct. 2015)
Operation Safe Haven – 29 arrests in 13 cities and 8 states (Oct. 2015)
Operation Someone Like Me – 20 arrests (Oct. 2015)
Operation Pop-A-Smurf – 25 arrests (Sept. 2015)
Traveller Operation “L & P” – 101 arrests (June 2015)
National Johns Suppression Initiative – 552 arrests* (Super Bowl 50 2016)
*30 sex trafficking & 522 sex solicitation arrests by a national coalition of 23 law enforcement agencies
Human trafficking rings often involve child sex trafficking and shocking statistics reveal the magnitude of this atrocity in the U.S. The FBI’s “Innocence Lost” program has resulted in the identification and recovery of approximately 4,800 sexually exploited children since its creation in 2003.
Law Enforcement Agencies Highlight the Power of Collaborative Financial Investigations to Combat Human Trafficking
New York DA Cyrus Vance makes one of the most compelling cases for industry collaboration to help fight human trafficking that I have heard. The extracts cited below are remarks he made in a press conference focused on this heinous crime.
“Prosecutors need every available tool in the fight against this terrible crime, and financial forensics are amongst the strongest in our arsenal. Human trafficking, at its core, is a business. Like other businesses, it leaves a financial paper trail that can be tracked and used to identify trafficking networks. Human trafficking is not a problem that law enforcement can tackle alone. It requires the close collaboration with many concerned groups looking at this crime through different lenses.”
Human Smuggling is Another Formidable Crime that Exploits Financial Institutions
“Human smuggling is a big business. And they couldn’t operate on the scale they do without the banks.” (Stephen Adaway, Unit Chief, ICE/Homeland Security Investigations, Human Smuggling and Trafficking Unit, Washington)
Although this article focuses primarily on human trafficking, I felt I would be remiss not to discuss the crime of human smuggling as well. Human smuggling involves bringing or attempting to bring undocumented immigrants into the U.S; whereas human trafficking involves the use of force, fraud or coercion to recruit, harbor, transport, provide, or obtain persons for purposes including forced labor and sexual exploitation. Homeland Security Investigations (HSI) uses the characteristics noted below to distinguish the key differences between these two crimes.
| Human Trafficking | Human Smuggling |
| Crime against a person | Crime against a border |
| Exploitation based | Transportation based |
| No border crossing required | Requires border crossing |
| Involuntary | Voluntary |
More than 2,000 human smugglers were convicted as a result of Homeland Security investigations by the end of fiscal year 2015. One of the ways HSI attacks these organizations is by targeting financial institutions. “We work with just about anybody and everybody you can imagine in the financial realm when we are looking at these types of cases,” says Sean McElroy, special agent in charge of Homeland Security investigations in Houston.
Recent Flow of Money from the Middle East to Mexico is Currently the Subject of Intensified Scrutiny by U.S. Attorney Generals and Federal Law Enforcement
The Arizona Attorney General’s office highlighted a trend with regard to a recent flow of money from the Middle East to Mexico at an International Border Attorneys Generals Conference last month. The AG’s Office indicated that its Financial Crimes Task Force had begun investigating money transfers from the Middle East to Mexico. Arizona AG officials launched an investigation in November 2015 after six Middle Eastern men were arrested south of Tucson for illegally crossing the border into Arizona.
The AG’s office issued a report in March 2016 that highlighted the growing money trail between the Middle East and Mexico. It said that Tapachula, a city in southern Mexico which is a hub of human smuggling for migrants, received the most money from a sender with a Middle Eastern connection, and Nogales, located on the border of Arizona and Mexico, received the second-most amount of money.
The report further noted that in 2015 one human smuggler received 70 money transfers from 69 senders with names that appeared to be of Middle Eastern origin. One of the presenters at the International Border Attorneys Generals Conference stated that Arizona is the second highest in Middle Eastern money transfers and said that showed as Middle Easterners or migrants are coming through Mexico, they are surfacing in Arizona. AG Mark Brnovich said he is worried that people with “ill intentions” may try to cross the border from Mexico into Arizona.
Brnovich has voiced his concerns to news media: “We know that six people were apprehended at the border from Middle Eastern countries, and it does cause us some concern when you see not only the spike of people coming over our southern border, but also the amount of wire transfers and money that is being sent…Is it because they are being smuggled from the Middle East into the United States? Is it because maybe there are terrorism organizations involved, either in funding or the human-trafficking trade?”
Brnovich said his office is working with the U.S. attorney general to figure out why money is being sent from the Middle East to Mexico. He said one of the most important parts of any investigation is to figure out the basics of funding: Who is sending money to whom and how often. “For us to effectively be able to look at where money is coming from and being sent to is so important as a tool for law enforcement” he said.
“Coyotes” [Smugglers] Have Exploited Bank Accounts for Years in Operating their Human Smuggling Businesses
Bloomberg Market News published a magazine article “The Coyotes and the Banks” in February 2015 which clearly revealed that human smuggling enterprises’ use of the financial system has not only been a long time issue, but continues to be an ongoing concern.
Former Arizona Attorney General Terry Goddard says that smugglers increased their use of banks after the crack down on money transfer company Western Union in 2010. Western Union agreed to hire more investigators and tell authorities about all wire transfers exceeding $500 to and from the U.S. Southwest. Arizona Attorney General spokesperson Grisham has said that “Since then, we have seen a significant shift to banks.”
Former AG Goddard, who led probes of human smugglers from 2003 to 2010, has stated that “The regulators and the bankers are not doing a very good job of policing their accounts. There’s a level of ordinary suspicion that banks and regulators are failing to employ.”
According to evidence in one U.S. federal criminal case against a gang of 15 human smugglers, major banks were used as financial conduits for the smuggling industry. In 2006, prosecutors issued subpoenas ordering two major banks to look for accounts suspected of being used by coyotes. The subpoenas directed banks’ investigators to look for patterns common to smugglers (e.g. large cash deposits in one state withdrawn almost immediately in the Southwest) and the banks flagged hundreds of accounts for prosecutors to investigate. Phoenix police targeted the same transaction patterns and seized hundreds of accounts at three big banks from 2006 to 2008.
One of the preferred methods that human traffickers and smugglers use to move funds is referred to as “funnel accounts”. FinCEN defines a funnel account as “an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.”
Smugglers open accounts in their own names or those of trusted colleagues and instruct friends and relatives of people seeking to migrate to deposit payments into those accounts. The smugglers then withdraw the money from bank branches, often near the Mexican border. This is why smugglers prefer tier 1 banks that have branches across the country or credit unions that practice shared branching to receive payments.
The Arizona AG’s office says it documented $360 million of funds used for human smuggling from 2008 to 2013 that moved through Arizona-based funnel accounts. Arizona AG spokesperson Stephanie Grisham commented that prosecutors and federal agents began pressuring banks to crack down on smugglers in 2013, with mixed results. AZ prosecutors got seizure warrants to shut down 325 accounts between March 2013 and January 2015 suspected of belonging to smugglers at two big banks. And as part of “Operation Coyote”, the Department of Homeland Security seized $950,000 in 504 accounts from June to September 2014 at undisclosed banks.
U.S. Government Report Reveals that Over $12 Million Suspected Illicit Human Smuggling Proceeds Were Sent to TX Border Cities in a 4 Month Period in 2015
The Government Accountability Office (GAO) issued a report earlier this year which provided various viewpoints with regard to payment methods associated with illicit proceeds from human smuggling.
The report cited that “According to Treasury, efforts by state and federal law enforcement to curb the use of money transmitters to pay human smugglers along the southwest border has resulted in a shift to funnel accounts, using the banking system rather than money transmitter networks. However, law enforcement officials from the southwest border High Intensity Financial Crime Area told us that, in their experience, a large percentage of human smuggling fees were sent using money transmitters because these providers offered a quick and reliable method of transfer with some degree of perceived anonymity for the smugglers and their couriers. These officials said that over $12 million in suspected illicit human smuggling proceeds were sent to Texas border cities through money transmitters in the 4-month period between January and April 2015.”
The GAO report further noted that “there are a number of stages involved in human smuggling and in human trafficking during which smugglers and traffickers may need to interact with remittance providers. For example, to avoid detection, smugglers may make multiple remittance payments below the recordkeeping and reporting thresholds to people who are paid to move undocumented immigrants to the United States.” It indicated that one money transmitter told GAO staff that it had provided internal guidance it relies on to help identify possible human smuggling payments including the following two examples:
- A customer picks up money transfers in agent locations along the U.S. border from multiple senders in various parts of the United States. All of the transactions are for similar dollar amounts.
- A customer picks up a money transfer at an agent location along the U.S. border and is accompanied by another person. The other person appears to be telling the customer what to do. After the transaction is completed, the customer gives the money to the other person.
Financial Red Flags Compiled by the “Bankers’ Alliance Against Trafficking”
The Organization for Security and Cooperation in Europe (OSCE) has an excellent compilation of detailed red flags indicators for human trafficking in its online library which are noted below. These indicators were prepared by the “Bankers’ Alliance Against Trafficking”, a financial working group that was organized by Manhattan DA Cyrus Vance and the Thompson Reuters Foundation. Organizations that contributed to this collaboration include American Express; Bank of America; Barclays; Citigroup; Human Trafficking Pro Bono Legal Center; JPMorgan Chase & Co.; TD Bank; TG Global, LLC; Polaris Project; Wells Fargo and Western Union.
These insightful red flags were presented at an international OSCE conference focused on human trafficking in 2014 and were distributed to financial institutions and law enforcement agencies in the U.S. and internationally to help their efforts to combat human trafficking.
Payroll Activity in Business Accounts
- Non-payment of taxes, workman’s compensation, and other fees to a tax authority or other governing body typically associated with legitimate full-time employment.
- Transfers of funds back to employer’s account or the same third party after payment of wages (a possible indicator that a worker is paying off a debt to an employer or labor broker).
- Methods of payments to employees that may be indicative of Labor Trafficking. Examples include:
- Rate of pay for each pay period is identical (no changes for overtime, vacation, sick leave, bonus payments, etc.) in jobs where that would not be expected.
- Every employee’s payment is identical.
- Recurring (e.g., bi-monthly) payments for wages at unreasonably low amounts (such as $1.19 for the entire pay period after deductions are taken out may be indicative of debt bondage).
- Checks from an employer’s account all endorsed on the same day often at a single establishment.
- Labor contracting or recruitment businesses without deductions for the payment of wages.
Business Expenditures
- Relatively high expenditures for items inconsistent with stated business purpose such as rental of multiple hotel or motel rooms or apartments (to provide housing for workers), large scale purchases of phone cards, and regular vehicle rentals when such rentals do not appear to have a logical connection to the underlying business activities of the customer.
- A high volume of credit card authorizations for accommodations or vehicles with no subsequent charge (suggesting an intention to avoid leaving an electronic record by paying in cash).
- Business accounts for companies not in the hospitality industry showing purchases of large amounts of food and other necessities may indicate that the business is acquiring these items to sell to employees in a “company store” arrangement that is designed to keep employees in debt to the employer. Such purchases may also be indicative of the business keeping the employees under one roof.
- Business customers whose transactions occur outside the time of known business operations. Examples include:
- 2 am credit card transactions at a nail salon.
- Significant and frequent gasoline station credit card charges between 11 pm and 6 am (may indicate the movement of carnival workers, farmworkers, or door-to-door sales crews (e.g. magazine sales)).
- Fines paid to the Department of Labor or other workplace regulating entity.
- Businesses with an excessive number of accounts inconsistent with the stated business purpose of the customer.
Cross-Border Transactions
- Cross-border transfers of funds that are inconsistent with the stated business purpose of the customer (e.g., the value or the volume of such transfers are unusually high). Examples include:
- Simultaneous transfers from multiple accounts that have deposits from the same employer to the same overseas individual or financial institution (may indicate transportation of an entire group to a money transfer station or financial transactions conducted by the employer).
- Surges in money being wired to a particular overseas location or town where there is no logical business purpose, either by a particular business or from multiple individual accounts, may indicate debt payments to labor brokers.
- Payments to staffing agencies or foreign recruiters in high-risk countries for trafficking1 when the customer is not in a business where such payments would be expected.
- Unexplained patterns of cross border transactions between known trafficking routes, or higher risk trafficking geographies, where the payments do not appear commensurate with trade or family remittance.
- International transactions in or with geographies at higher risk for trafficking or sexual tourism.
Individual Accounts Appearing to Have Same Employer
- Non-familial custodial bank accounts where there is the same custodian on multiple accounts. This activity may be suggestive of an employer/labor broker controlling workers’ accounts and preventing access to their own funds.
- Repeatedly endorsing checks to the same third party. This activity may be indicative of a financial “loop” or “round-trip” where employees appear to be receiving wages but the funds are ultimately rerouted back to the trafficker through an intermediary.
- Issuance of a final check to close out an account that is made payable to the employer who had been depositing funds into the account.
- Bank accounts opened for A-3/G-5/B-1/J-1 visa holders that receive little or no deposits at all and/or have the employer as a custodian of the account.
- High number of individual accounts for the same customer that are all opened or closed on the same date.
Personal Expenditures and Deposits
- Individuals with an excessive number of personal accounts.
- Repeated low-value payments to online or print advertisers known to cater to the sex industry.
- Payments to multiple cell phone/utilities companies or multiple payments to the same company.
- High-volume of travel related transactions (e.g., airlines, motels, rental cars, bus or taxi charges in multiple cities or states), including the payment for third party travel often naming female or minor travellers, when such transactions are not logically connected to the customer’s trade or business.
- Frequent cash deposits made via ATM rather than at the teller or at multiple ATMs on the same day, sometimes followed by ATM withdrawals in a different location.
- Individuals with nominal occupation information or discrepancies between account funding and the known customer profile.
At-Risk Industries
- Business customers in industries whose workers are more frequently exploited by traffickers. Examples include:
- non-unionized service workers
- hospitality providers
- food service workers
- labor intermediaries
- massage parlors
- nail salons
- travel agents
- offices of immigration attorneys
- employers of domestic workers
- traveling sales crews
- strip clubs
FinCEN Advisory: Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags
FinCEN’s Advisory FIN-2014-A008 is another extremely valuable resource for financial institutions to assist with their efforts to help fight human trafficking and human smuggling. It provides a comprehensive list of financial flags. The advisory also encourages financial institutions to share information with one another under Section 314(b) of the USA PATRIOT Act when evaluating whether certain transactions are suspicious and/or related to human smuggling or trafficking. It states that no single transaction by itself is a clear indicator of human smuggling or human trafficking but that several warning signs can indicate this type of behavior. Sample indicators include multiple wire transfers below the $3,000 threshold sent to a common beneficiary from various locations; wire transfers from countries with high migrant populations; and the existence of a potential funnel account.
