Human Trafficking
Human Trafficking – At a Glance
- Human trafficking is a forced labour exploitation that facilitates the generation of illicit funds, requiring detection and reporting.
- Under AML/CFT compliance requirements, human trafficking is denoted as a predicate offence for money laundering.
- Regulated entities must implement effective AML/CFT controls to identify human trafficking typologies and combat financial crime.
- Citadel365 helps regulated entities by centralising compliance procedures and incorporating trafficking typologies and red flags to mitigate risks.
What Is Human Trafficking in an AML/CFT Context
Human trafficking involves human exploitation through fraud, force, or coercion for economic gain. It is a serious financial crime primarily driven by profit, where criminals treat people as commodities and exploit them for monetary advantage.
Unlike human smuggling, which is voluntary, human trafficking is modern slavery, which involves ongoing exploitation. It acts as a predicate offence for money laundering that generates illicit funds and is later integrated into the legitimate financial system as clean money. Regulated entities must apply AML controls to prevent illicit funds flow and combat human trafficking crimes.
How Human Trafficking Generates Financial Crime Risk
Criminals involved in human trafficking generate profits through coercive practices, sexual exploitation, and other illegal activities. The traffickers transfer illicit funds through various means, such as cash transactions, third-party accounts, and remittances, to avoid detection.
Human trafficking leads to financial crime risk as criminals disguise the origin of illicit funds, making tracing difficult for regulated entities. This involves placing money into the financial system through cash-intensive businesses, then layering through shell companies, wire transfers and cryptocurrency. Lastly, criminals reintroduce the money derived from human trafficking as clean money through fake business investments or the purchase of luxury goods.
Red Flags and Suspicious Indicators of Human Trafficking
Common red flags and signs indicating funds derived from human trafficking practices are as follows:
- Multiple unrelated individuals linked to a single account, contact information or address.
- Multiple small transactions from multiple sources, such as Cash App, prepaid cards, etc.
- Transactions inconsistent with the customer’s expected activity or employment status, or occur outside business hours.
- Multiple bookings to hotels or short-term rentals, multiple employees’ salaries deposited to a single bank account, or small businesses with high volumes of cash deposits in sectors such as hospitality and agriculture.
Regulatory Expectations for Detecting Human Trafficking
Financial institutions and DNFBPs should identify and report trafficking-related financial activity to comply with AML/CFT legal obligations. Key requirements include adopting a risk-based approach, implementing customer due diligence, conducting risk assessments, ongoing monitoring and SAR/STR reporting. The obligations also include conducting enhanced due diligence for high-risk customers and sectors.
Regulators also expect entities to maintain records for evidence, establish proper procedures for escalating suspicious activities and cooperate with law enforcement agencies to ensure transparency and support investigations.
Detecting Human Trafficking Risk with Citadel365
Citadel365 is a unified compliance platform that integrates AML controls to support the identification of human trafficking-related financial patterns. Its customer onboarding software and name screening software verify customer identities and perform real-time screening to identify high-risk customers.
Further, the customer risk assessment software evaluates customer profiles based on several factors, such as occupation and geographic exposure, to define adequate risk scores. Moreover, the transaction monitoring software helps detect unusual payment patterns, behavioural anomalies and linked accounts that suspect human trafficking typologies.
In addition, Citadel365’s case management software streamlines compliance workflows and facilitates an audit trail for investigations and regulatory reporting by providing supporting documentation and allowing structured processes.
Strengthening Controls to Combat Human Trafficking Risks
Regulated entities should strengthen their controls to prevent human trafficking risks, which include:
- Conducting customer due diligence to identify high-risk profiles and sectors during onboarding.
- While assessing customer risk, entities must incorporate trafficking typologies and red flags to develop customer risk scores.
- Perform ongoing monitoring to track linked accounts such as funnel accounts, and unusual behavioural patterns that suspect human trafficking activities.
- Adopt a centralised system to record customer activities and documents that support regulatory reporting and inspections.
Human Trafficking FAQs for AML Professionals
Human trafficking refers to the forced exploitation of people for profit. It is a predicate offence under money laundering, requiring regulated entities to monitor, detect and report proceeds from human trafficking to ensure AML compliance.
Financial patterns such as multiple linked accounts, frequent small cash deposits and withdrawals, multiple frequent travel or hotel bookings, and transactions inconsistent with the customer profile indicate human trafficking activity.
Regulators expect firms to adopt a risk-based approach, with enhanced KYC/CDD and ongoing monitoring procedures to detect trafficking-related risks. Further, firms should follow clear procedures for the timely escalation and reporting of human trafficking-related suspicious activity.
Human trafficking refers to the use of fraud, force or coercion to exploit people for economic gain, while human smuggling involves the provision of service, including illegal transportation of persons across borders.
Yes, technology like Citadel365 automates screening and transaction monitoring to identify high-risk customers and unusual payment patterns, which helps improve the detection of human-trafficking risks.