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The Green Sheet Online Edition

February 13, 2023 • Issue 23:02:01

What you can do to stop human traffickers in the digital age

By Maya Shabi

Human trafficking has exponentially risen in the United States in the past decade. According to the U.S. Bureau of Justice Statistics (see bit.ly/3YllKYX), the number of persons prosecuted for human trafficking increased 84 percent from 2011 to 2020. A total of 2,198 persons were referred to U.S. Attorneys for human trafficking offenses in the 2020 fiscal year alone.

Human trafficking has not only increased but gotten more sophisticated as technology advances and becomes more complex. Today, traffickers take advantage of digital payment processing, regulatory loopholes and fraudulent practices to commit crimes.

Following the first National Human Trafficking Awareness Month, January 2023, here's an overview of how traffickers monetize their offenses and what banks, payment providers and acquirers should do to stop it.

What does human trafficking look like?

Traffickers use force, fraud or coercion to lure their victims and force them into labor, commercial sexual exploitation or illegal activities. These criminals look for victims who are susceptible for a variety of reasons, including psychological or emotional vulnerability, economic hardship, lack of a social safety net, natural disasters or political instability. Often, language barriers, fear of their traffickers and/or fear of law enforcement keep victims from seeking help.

According to the UN’s social and economic watchdog, the International Labor Organization, the profit from human trafficking is calculated to be $150 billion per year. This money finds its way back into financial and payment systems, allowing the criminals and perpetrators to enjoy the success of their criminal acts, encouraging them to continue, and even expand.

Traffickers use the internet in growing numbers

The internet and digital technologies are increasingly used to facilitate trafficking. In fact, the United Nations Office on Drugs and Crime reported that since 2009, the share of victims trafficked using a form of social media has grown from zero to 51 percent.

Illegal content is being displayed in plain sight on the internet. Our proprietary data reveals that approximately 150,000 sites today are suspected of promoting or displaying acts of illegal sexual exploitation.

This data is based on machine learning algorithms that assess different properties of websites to determine their content classification. The UN report also noted that 48 percent of trafficking cases between 2015 and 2018 involved the use of free-standing web pages or classified web pages for advertisements.

The internet has also broadened the geographical scope of traffickers´ operations, helping them operate across borders and in multiple locations at the same time—all while physically exploiting the victims in a single location.

How traffickers pose as legitimate businesses

Traffickers have creative ways to introduce their revenue back into the financial system as if it were legitimate clean money. This is commonly referred to as money laundering or transaction laundering when performed online.

In its advisory on human trafficking (see bit.ly/3wAjQYl), the Financial Crimes Enforcement Network (FinCen) introduced four new human trafficking typologies. These explain the evolving techniques traffickers are using to evade detection.

  • Front companies – Fictitious companies used to cover illegal practices
  • Exploitive employment practices – Exploitative employment schemes, such as visa fraud and wage retention, used by seemingly legitimate businesses to amass profit
  • Funnel accounts – Accounts used to launder money between intermediaries to fund unlawful activities
  • Alternative payments – Payment methods such as cash, credit cards, prepaid cards and convertible virtual currency

Traffickers exploit regulatory gaps to process payments

In particular, the use of alternative payments is incredibly concerning for banks, acquirers and payment providers.

Traffickers use third-party payment processors (TPPPs) to wire funds, which gives the appearance that the TPPP is the originator. TPPPs are firms that act as a payment processor to facilitate payments through a clearance and settlement system by a written agreement with the seller. In some instances, these vehicles aggregate high-risk merchant customers that are unable to obtain banking services directly.

Currently, TPPPs are excluded from the definition of money transmitters and are therefore not subject to the rigorous anti-money-laundering and customer due diligence obligations of the Bank Secrecy Act. FinCEN refers to this exclusion as the “the payment processor exemption,” according to 2014 guidance.

This exemption was initially intended to apply to payments that posed lower illicit finance risk, such as utility payments. But the payment processor exemption is now relied upon by larger fintech firms with more diverse and higher risk business models.

Even more troubling, this exemption allows payment processors to function as unregulated financial intermediates between buyers and sellers, dramatically reducing visibility into merchant behavior, risk and identity.

In practice, this means that banks may have little transparency into a merchant’s source of funds, if they used a TPPP. The end-to-end payment chain, which includes the originator, intermediaries and ultimate beneficiary of the payment, is not reviewed by a single party with a transaction monitoring obligation.

Lack of merchant transparency protects traffickers

Compounding the problem of TPPP risk is the prevalence of offshore entities. Many human traffickers operate across borders and use foreign geographic locations to manage their operations. It’s not uncommon to see high-risk TPPPs onboarding offshore entities that are not fully transparent about their primary activities or source of funds.

The considerable influx of new merchants over the last few years has also overloaded marketplaces and TPPPs, further complicating the screening process. Many players struggle to comprehensively review new merchants during onboarding, creating risk for transaction laundering, look-alike URLs and phishing attacks that aid in trafficking efforts.

What’s worse, current customer due diligence requirements allow TPPPs to investigate merchants at surface level only. This leaves ample room for exploitative business models to go undiscovered. And the lack of oversight at the TPPP level means financial institutions are even further removed from the truth.

What can you do?

Financial and regulatory stakeholders must come together and strategize a better plan to eliminate human trafficking. Action items include:

  • Support oversight for high-risk merchant processors: Regulators are increasingly paying attention to the lax oversight previously enjoyed by high-risk TPPPs. Support regulations that encourage thorough merchant verification and transparency.
  • Use advanced machine learning technology: Modern solutions have the ability to identify illegal transactions or businesses so they can be removed from your portfolio. They can also assess merchants at onboarding and monitor them afterward, to prevent illicit activity in your payment system. Implement an AI solution to help prevent human traffickers from using your services.
  • Commit to stopping human trafficking: Banks, payment providers and marketplaces should commit to preventing trafficking through internal policies, operational and security procedures, and organizational priorities.

Let’s stop human trafficking

People tend to avoid talking about human trafficking because even the idea of such a horrendous crime makes them uncomfortable. But banks, acquirers and payment providers should remember that they may be unwitting hosts to illegal activities due to low visibility of their merchants’ underlying business models, content or true identity. You have a legal and ethical obligation to ensure traffickers aren’t using your platform to harm people.

So, let’s bring awareness to this problem and place our efforts toward stopping these crimes. end of article

Maya Shabi, payments & risk specialist at EverC, can be reached via email at mayas@everc.com or LinkedIn at www.linkedin.com/in/maya-shabi-telaviv. EverC is the world’s first fully automated, AI-driven cross-channel risk management platform that is transforming the internet into a safe and trusted place for ecommerce.

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