The United Nations defines human trafficking as the recruitment, transportation, transfer, harboring, or receipt of persons by improper means (such as force, abduction, fraud, or coercion) for an improper purpose including forced labor or sexual exploitation. The human rights activists are alarmed that the current pandemic scenario has exponentially paved the way for human trafficking and human smuggling internationally. The major difference between trafficking and smuggling is the former doesn’t require movement.

Globally, regulators and inter-governmental organizations are extremely stringent in framing and implementing AML/CFT policies from time to time however, financial institutions are frequently used by human traffickers to launder money. FINCEN reports that an estimated $150 billion worldwide per year revenue is being generated by the traffickers. In USA, trafficking occurs across industries like care for persons with disabilities, salon services, retail, fairs and carnivals, peddling and begging, child care, domestic work, construction etc. As human trafficking is a predicate offense to money laundering Bank Secrecy Act (BSA) identifies the 4 typical typologies used by traffickers viz, front companies, Exploitative Employment Practices, funnel accounts, and Alternative Payment Methods.

Front company money laundering is a strategy applied by traffickers for decades. Upfront it appears as a legitimate business entity holding appropriate licenses and documents while often these front companies are part of organized, established illegal networks. In the guise of a legitimate business like saloon or spa, trafficked individuals are exploited. These businesses are cash intensive and the proceeds of crime are invested in real estates and luxury cars.

Some business enterprises use exploitative employment practices like misleading workers about the terms and conditions of a job, visa fraud, seize the laborers identity documents. Also recruitment fees are charged which range from hundreds of dollars to tens of thousands of dollars. When financial institutions witness numerous employees receiving salary in the same account, followed by immediate withdrawal or transfer into another account, it is a potential threat.

In order to move the funds across geographies, and to maintain anonymity, human traffickers make use of interstate funnel accounts .Funnel accounts are the accounts in one jurisdiction receiving numerous cash deposits particularly below the set threshold limits continued by withdrawal of funds in another jurisdiction where there exists minimum time lapse between the deposits and withdrawals. Traffickers have complete authority and control over a victim’s bank accounts and in few circumstances victims are forced to wire through MSB (Money Service Business) to facilitate funnel payments.

Besides cash deposits, traffickers make use of other payment channels like credit cards, prepaid cards, mobile payment applications, convertible virtual currency etc. FINCEN has also pointed out transactions in which traffickers used third party payment processors (TPPP s) to conceal the true identity of the originator or beneficiary.


Author: Rajashree, MBA, CAMI (PonSun AML Academy)

Source: FINCEN