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Compliance & Risk

Financial institutions are poised to take next step in combatting human trafficking

Sarah Dohoney Byrne  Senior Counsel at Moore & Van Allen

· 5 minute read

Sarah Dohoney Byrne  Senior Counsel at Moore & Van Allen

· 5 minute read

Despite the pandemic and economic crises of the last year, financial institutions continue to recognize their unique role in responding to human trafficking. However, the challenge remains with how to tactically build that response in a survivor-centered way, especially in the wake of a global pandemic.

A robust response to human trafficking for financial institutions necessarily includes:

        • providing enterprise-wide training to arm personnel with the skills needed to identify exploitation both within the company and in external relationships;
        • enacting and enforcing human rights policies;
        • establishing enhanced due diligence in anti-money laundering (AML) and know-your-customer (KYC) procedures;
        • paying attention to supply chain risks at both the company- and customer-level; and
        • creating survivor support programs that increase access to financial services and employment opportunities.

A survivor-focused and survivor-informed approach

An anti-human trafficking program is only effective if it is shaped by the victim experience and includes a remedial goal. This involves assisting law enforcement with seizure of account funds which will be subject to forfeiture for future restitution orders paid to victims, updating typologies to reflect real-life victim and perpetrator behaviors, and eliminating obstacles to access to financial services including penalties for low- or no-balance accounts, overdrafts, and delinquent credit histories. Mostly, this means listening and learning from the victim experience. A recent survey of survivor advocates performed by the Moore & Van Allen Human Trafficking Pro Bono Project led to the following recommendations for banks, specifically:

        • develop protocol for responding to victim self-reporting occurring at branches;
        • focus on deposits as much as withdrawals, which can be indicia of exploitation;
        • follow up on account closures because forced closures by perpetrators are common; and
        • increase information-sharing among banks regarding suspicious activity patterns and use of credit and prepaid cards and cryptocurrency.

Risk of an inadequate response

The notion that an anti-trafficking program is a matter of social responsibility or corporate conscience is outdated. Benevolence may have helped inspire the attention of financial institutions initially, but it is now a matter of regulatory compliance and risk mitigation. There has been an expansion of both criminal and civil law liability for organizations, including financial institutions.

First, the Trafficking Victims Protection Act (and various state laws) impose criminal liability on any corporation that “benefit financially” from human trafficking if such institutions “recklessly disregarded” that the business had engaged in an exploitive scheme. Additionally, companies may be civilly liable to victims who show by a mere preponderance of the evidence that the company “benefitted financially and “should have known” that it was involved in a trafficking scheme.

In October, the U.S. Treasury’s Financial Crimes Enforcement Network unit (FinCEN) released its Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity, which focused on four evolving tactics used by human traffickers to carry out and hide the proceeds from their illicit operations. These four tactics include: i) establishing front companies; ii) engaging in exploitative employment practices; iii) creating funnel accounts; and iv) utilizing alternative payment methods. This guidance should signal increased attention on financial institution responses to human trafficking.

In fact, this past summer, Deutsche Bank was fined $150 million by the New York State Department of Financial Services (NYDFS) for compliance failures related to client Jeffrey Epstein, his sex trafficking enterprise, and correspondent banks. In the Consent Order, NYDFS found that Deutsche Bank “conducted business in an unsafe and unsound manner [and] failed to maintain an effective and compliant anti-money laundering program. Also, Westpac Bank was fined US$920 million in September by the Australian Transaction Reports and Analysis Centre (Australia’s financial intelligence, anti-money laundering, and counter-terrorism regulator) for failures in AML reporting, record keeping, and detection, including transfers indicative of child sex trafficking.

Finally, the ever-evolving international framework of human rights and modern slavery laws are expanding required human trafficking disclosure and mitigation requirements for financial institutions and their corporate customers. (Examples include the Strengthening Protections Against Trafficking in Persons in Federal Contracts Act, California Transparency in Supply Chains Act, United Kingdom Modern Slavery Act of 2015, and the Australian Modern Slavery Act of 2018.) Similar legislation is being considered by the European Union, Canada, Germany, Hong Kong, Norway, and Switzerland.

Domestically, several bills have been introduced to U.S. congressional committees which seek to increase transparency within supply chains to better address labor abuses and mandate the development of a national strategy to combat financial sector facilitation of organized crime and money laundering that is involved in all forms of trafficking.

Just as legal and regulatory exposure for financial institutions has increased, the vulnerability that besets exploitation and re-victimization has as well, mostly due to the pandemic. Fortunately, the financial services sector is well positioned to respond to what is now a more urgent need to combat human trafficking and support survivors of this increasingly complicated crime and victim experience.

Financial institutions have demonstrated a commitment to making an impact, even as the hard work in enforcing and monitoring a multi-faceted and survivor-centered program continues.