Laundering of Proceeds From Human Trafficking For Sexual Exploitation
In July 2021, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) issued Operational Alert “Updated Indicators: Laundering of Proceeds From Human Trafficking For Sexual Exploitation,” FINTRAC-2021-OA001, which updated its 2016 Operational Alert “Indicators: The Laundering of Illicit Proceeds From Human Trafficking For Sexual Exploitation,” FINTRAC-2016-OA003, December 15, 2016.
FINTRAC is an independent financial intelligence agency responsible for the collection, analysis, assessment and disclosure of information in order to assist in the detection, prevention and deterrence of money laundering and the financing of terrorist activities in Canada and abroad. FINTRAC:
Receives reports from financial institutions and intermediaries
Analyzes and assesses the reported information
Discloses suspicions of money laundering or of terrorist financing activities to police authorities and others as permitted by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
Reveals to the Canadian Security Intelligence Service (CSIS) information that is relevant to threats to the security of Canada
Background
FINTRAC’s 2021 Operational Alert provides background on:
The difference between human smuggling and human trafficking
The prevalence of human trafficking over forced labor
Human trafficking for sexual exploitation, like drugs and weapons trafficking, being just another commodity in a range of criminal activities perpetrated mostly by organized crime groups who often collaborate with each other to maximize illicit financial gain
Trends in human trafficking in Canada and a report by the Canadian Centre to End Human Trafficking (CCEHT) that found that exploitation through escort services distantly followed by illicit massage businesses were the most common forms of human trafficking for sexual exploitation in Canada and identified several human trafficking corridors in Canada connecting commercial sex markets within and across Canadian provinces (reference 5 Mar 2021 LinkedIn article).
Transactional Clues
FINTRAC analyzed a sample of approximately 100,000 transactions disclosed from 2018 to 2020 related to human trafficking for sexual exploitation. FINTRAC detailed money laundering methods and particular types of transactions for several human trafficking for sexual exploitation business models with some crossover - all used advertisements of escort services to obtain clients and some traffickers operated their own escort agencies.
In addition to human trafficking, many traffickers were also involved in or suspected to be involved in other criminal activities (e.g., drug trafficking, fraud) and were members or associates of criminal groups. Many traffickers used their victims to conduct other crimes
Front businesses were used to illicitly offer sexual services, to launder proceeds, and/or to manage the running costs associated with human trafficking. For example, illicit proceeds were used to pay the rent and utilities for residential properties where sexual services are rendered or used as safe houses. Front companies in FINTRAC's sample were diverse and included industries such as, music, spas, salons, restaurants, motels, farming, IT services, clothing, vehicle- and construction-related businesses, and transport businesses among others. Front companies co-mingled legitimate with illicit funds and/or had limited business-related transactions. They were owned by traffickers, their associates and other members of their human trafficking networks including some victims. Businesses owned by victims also transferred funds to traffickers and their businesses.
How to Use Indicators
Indicators of money laundering can be thought of as red flags indicating that something may very well be wrong. Red flags typically stem from one or more characteristics, behaviors, patterns and other contextual factors related to financial transactions that make them appear inconsistent with what is expected or considered normal. On its own, an indicator may not initially appear suspicious. However, it could lead you to question the legitimacy of a transaction, which may prompt you to assess the transaction to determine whether there are further facts, contextual elements or additional ML/TF indicators that would increase your suspicion to the point where submitting an STR to FINTRAC would be required (see FINTRAC Guidance on Suspicious Transaction Reports).
Money Laundering Indicators
Below are breakouts of additional money laundering indicators related to human trafficking for sexual exploitation derived from FINTRAC's analysis and reflect the types and patterns of transactions, contextual factors and those that emphasize the importance of knowing your client (KYC). All indicators from FINTRAC's 2016 Operational Alert on the laundering of proceeds from human trafficking for sexual exploitation remain relevant (see Appendix, List of Indicators from FINTRAC’s 2016 Operational Alert, pages 11-12). The additional indicators should be considered along with those in the 2016 Operational Alert.
General contextual and money laundering indicators possibly related to human trafficking for sexual exploitation (42 indicators)
Contextual and money laundering indicators possibly related to human trafficking for sexual exploitation out of private residences (5 indicators)
Contextual and money laundering indicators possibly related to human trafficking for sexual exploitation out of illicit storefront businesses offering sexual services (4 indicators)
Contextual indicators possibly related to trafficking foreign nationals for sexual exploitation (7 indicators)
A sampling of some of the latest 2021 indicators:
Frequent transfers to virtual currency exchangers, particularly if these funds were sourced from incoming email money transfers from multiple individuals
Transfers to individuals or companies that advertise their virtual currency services on escort websites
Frequent purchases or payments to online gambling or casino platforms
A female's reloadable prepaid credit card being funded by reloads or transfers from a male, usually the same one
Excessive payments to multiple telephone or internet service providers
The 2021 Alert also offers several useful resources, especially:
Anti-Human Trafficking Intelligence Initiative (ATII), “Red Flags and Indicators Applicable to Sex Trafficking and Forced Labor”
Financial Crimes Enforcement Network (FinCEN), “Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity” (reference 3 Feb 2021 LinkedIn article)