Human trafficking – a real threat that requires everyone’s involvement

Authors:David Bentz | LinkedIn Staff Assistant Business Consultant, FSRM

Linda Caron, MBA, CAMS, CAMS-FCI | LinkedIn Senior Manager Business Consultant, FSRM

Margaux Dedebant | LinkedIn Staff Assistant Business Consultant, FSRM

The human trafficking market is expanding and related activities are a significant source of income for criminal organizations.

A new era: the impact of social media

The rise of social media platforms has ushered in a new era in the domain of human trafficking. Criminals exploit these platforms to entrap victims into forced labour, sexual slavery and other forms of exploitation. Victims are often lured through promises of romance, friendship or fake job opportunities, exploiting their vulnerabilities.

Social media platforms' anonymity and encryption technology further enable traffickers to conduct their activities discreetly. This digital landscape poses a challenge for authorities, making the fight against trafficking more complex and demanding. Online platforms make it relatively easy for traffickers to identify potential victims, especially those who post personal information about their financial hardships, struggles with self-esteem or family.

Social media companies have been slow or reluctant to crack down on human trafficking activity on their platforms and, in some instances, the development of encryption and anonymization technology for other purposes has helped traffickers ply their trade.

Traffickers use social media to lure children, especially teenaged girls, into sex slavery.³ According to a 2015 study by the anti-sex trafficking group Thorn, 55% of victims of domestic sex trafficking say they first contacted their trafficker online. This emergence has allowed criminals to maximize this sphere to further exploit human trafficking while circumventing the traditional detection models put in place by the relevant authorities.⁴ These new methods are highly complex and complicated to detect, posing significant challenges to the police, the justice system and financial institutions, among others.

Human trafficking in Canada

While Canada may appear to be a safe haven, it faces its challenges concerning human trafficking. Canada is indeed a source of, transit point and destination for human trafficking, with the number of reported cases increasing in recent years.

Statistics Canada announced that between 2010 and 2021, some 3,541 cases of human trafficking were reported to the police, including offences under the Criminal Code and those related to the Immigration and Refugee Protection Act. In 2020, there were 515 cases, in which the vast majority (96%) were women and girls, 60% of whom were under 25 years of age, representing a slight decrease, mainly related to the COVID-19 pandemic.

Important to mention is that 83% of incidents of human trafficking were reported in census metropolitan areas. Proportionally, 62% of all human trafficking incidents were reported in Ontario and 10% were reported in Nova Scotia, despite the fact that Nova Scotia accounted for only 3% of the Canadian population in 2021 compared to Ontario at 39%.⁵

When it comes to human trafficking in Canada, it’s important to distinguish between international trafficking and domestic trafficking. Internationally trafficked persons enter Canada through a variety of means, both legal and illegal. Some arrive with papers for fake or real job offers, often for contract or seasonal work. Job offers for women often include work in the entertainment industry or jobs as waitresses or nannies. Men often arrive for farm labour or construction work.

Although some trafficked persons may have been abducted outright, many enter the country of their own volition. The problem arises once they arrive at their destination, when these individuals are forced into exploitive situations involving the sex trade or other forms of labour. According to the United States State Department’s 2021 Trafficking in Persons Report, persons trafficked into Canada from abroad for the purpose of sexual exploitation arrive primarily from Asia and Eastern Europe, while those trafficked for labour exploitation are generally from Asia, Eastern Europe, Latin America and the Caribbean, and Africa.

As perceptions of human trafficking evolve, the trafficking of Canadians within national borders has received increased attention from law enforcement agencies — particularly trafficking connected with the sex trade. In the same way that individuals entering Canada may become part of exploitive work environments to escape dire conditions of poverty at home, some Canadians facing economic deprivation and lack of opportunity for education or employment in their home communities are also pushed into exploitive activities, particularly the sex trade. These Canadians include Indigenous women and girls, migrants and new immigrants, members of the 2SLGBTQ+ community, persons with disabilities, children in care and other at-risk youth, and persons who are socially or economically disadvantaged.

In both international and domestic trafficking, most of the time the victim knows, loves or trusts the trafficker offering job opportunities, safety, stability, love or drugs. Leaving the trafficker is rarely an option because of the shame, threats of violence, fear, love, immigration threats, threats to loved ones, drug addiction, isolation or debt bondage.⁶

Financial institutions' response

Traffickers use the financial system for many purposes: sending and receiving money, booking accommodations, purchasing airline tickets and other luxury goods, and laundering money. The aim is, therefore, to intervene at this level in the process to identify human trafficking as early as possible.

Financial institutions play a crucial role in detecting and combating human trafficking. Recognizing the interconnectedness of the financial sector with criminal activities, these institutions have the unique opportunity to lead global efforts against trafficking.

Detection of suspicious transactions or behaviour: Financial institutions can use their expertise in transaction monitoring to identify unusual patterns that might indicate human trafficking. For example, frequent and unexplained cross-border transfers, payments to questionable entities or large sums of money from unrelated sources could trigger alerts.

The following examples constitute indicators that are red flags related to human trafficking:

Cash deposits

• Excessive deposits, particularly in round amounts, like $50, $150 and $200.
• Abnormally timed deposits, such as between 10 p.m. and 6 a.m.
• Large-denomination deposits. A normal cash-intensive business would have a mix of denominations. At some point there would be coins, $5 and $10 bills. Human trafficking will largely use $20, $50 and $100 bills.
• Deposits in multiple cities, particularly if they are not close to each other, over a small period. Look for the impossible trip, Halifax, and Vancouver in the same day, for example. This is an indicator that multiple people are using the same account as a funnel account.

Peer-to-peer payments

• Payments in round consistent amounts. An account that is taking in a lot of these have some telltale signs as well. The fact that the payments are in some sort of increment — $150, $300 or $50, for example — can be an indicator that someone is buying something in increments of hours.
• Multiple originators with some repetition. Many different parties paying into the same account over time with repeat customers. If there is a single email address associated with multiple bank accounts or the opposite, a single bank account associated with multiple email addresses, and those are tied to online advertising or escort sites, should raise some red flags.
• Funnel accounts and peer-to-peer transfers. Accounts are used to collect the payments, followed by an immediate ATM withdrawal to take out the money. Often this happens quickly, in as little as 30 minutes.

Payroll deposits and atypical sources of income

• Multiple payroll deposits into one account, which could be an indicator for slave labour. This would look like multiple government benefit checks are deposited to the same account. Clearly intended for more than two or three people, meaning the person is in control of the labour and taking the money and paying it out, with much less going to those doing the work.
• Multiple deposits from processors for online adult content, such as Fenix, Onlyfans and the like.

Frequent card cancelations

• Anti-money laundering (AML) analytics teams have discovered that one essential indicator is frequent cancelations. Here is an example: when a trafficker makes a reservation for five nights at any hotel, prepaid with his credit card, then shows up at the hotel and asks to cancel the card transaction to pay the $500 hotel fee in cash.

Specific living expenses such as food, travel, hotels and others

• The frequency of pharmacy and fast food expenses is higher than the rate of normal customers. While the average person spends about $12 on these, a person suspected of human trafficking typically spends about $97. The same is true at fast food, spending as if they are feeding a large family.
• Hotel or, more recently, longer-stay vacation rentals: This used to be almost exclusively hotel and motel locations. But instead of using hotels and changing every few days, now traffickers are getting long-term vacation rentals and renting them for a longer period of time, but moving in different trafficking victims.
• A lot less scrutiny on it. Just one large transaction rather than a lot of transactions during the month. One thing that really stands out are cancellations at hotels. They really want to consume their cash. Get a booking on a credit card, then canceling it and using the cash for hotel and car rentals.
• Bookings with credit cards to and from human trafficking source countries like Thailand, China and other places in Asia to regions like the US, the EU and Canada. Also related cancelations and payments with cash.
• Cell phone or multiple cell phone bills. Most people have a cell phone, but traffickers often have three or four. Bills can be in excess of $4,000. They are also constantly switching out the sim chip, rather than buying and dumping burner phones.
• People with a personal account spending great amounts of money on online advertising. Human traffickers buy ads on different dating sites. These transactions could be seen through a perpetrator or victim account.⁷

Cross-border factor: Remittances linked to human trafficking, particularly in sex tourism destinations like the Philippines and Thailand, highlight the transnational nature of the problem. Canada has adopted laws and policies aimed at deterring and repressing child sex tourism or sexual exploitation in other countries. Canada has enacted extraterritorial laws to prosecute Canadians who engage in sex tourism activities in other countries, even if such activities are not illegal in those countries. This means that Canadians can be prosecuted and tried in Canada for offenses committed abroad.

Also, Canada works with other countries and international organizations to combat sex tourism. This may include establishing bilateral or multilateral agreements to exchange information and cooperate in investigations. For several years now, the government has worked with the tourism industry to sensitize professionals to the signs of sex tourism and child sexual exploitation. This may include training for staff in the hospitality industry, airlines and other tourism stakeholders. Canadian customs authorities can also exercise border controls to identify people suspected of traveling abroad for the purpose of engaging in illegal sex tourism.

Know your client (KYC): Financial institutions must verify their clients' identities and assess associated risks, since some businesses are more prone to involvement in illicit activities. Robust KYC practices allow them to know the risk related to the type of client. While KYC is not specifically designed to detect human trafficking, there are certain indicators that could raise suspicions about potential involvement in human trafficking activities. These indicators are not definitive proof of human trafficking but can serve as red flags that warrant further investigation by relevant authorities.

Here are some of the indicators that should alert you:

• Inconsistent information: Discrepancies in the provided identification documents, addresses, contact details or employment history could raise suspicions.
• False identification: The use of counterfeit or forged documents, including passports, identification cards or visas, could indicate an attempt to hide a person’s true identity.
• Limited personal knowledge: If a customer appears to lack basic knowledge about their own identity, background or employment, it could be a sign of coercion or manipulation.
• Reluctance to share information: Customers who avoid providing personal details or explanations, or who are evasive about their activities, might be attempting to hide something.
• Controlled communication: If someone else speaks on behalf of the individual, controls their interactions or appears to be exerting undue influence, it could indicate a situation of trafficking.
• High-risk occupations: Certain industries, such as adult entertainment, domestic work, agriculture and construction, are known to be at higher risk for human trafficking. Unusual or exploitve employment situations should raise concerns.
• Unusual behaviour or appearance: Visible signs of physical abuse, fear, anxiety, depression, malnourishment, lack of appropriate clothing, or signs of restraint could indicate a person is being trafficked.
• Limited freedom of movement: Customers who cannot move freely, exhibit signs of being monitored, or have limited access to personal identification might be under control.
• Excessive debt: Individuals with large debts that they seem unable to repay, particularly if they're working in high-risk industries, might be coerced or exploited.⁸

Staying ahead of technology: Advancements in data analytics and artificial intelligence can enhance the ability of financial institutions to identify unusual patterns and behaviours associated with human trafficking. By using predictive algorithms, institutions can proactively identify potential cases. Criminal groups adopt sophisticated methods to launder money, often using cryptocurrency. The rise of cryptocurrency transactions, especially in industries linked to trafficking, has made tracking and detection more challenging.

A substantial increase in this payment type was seen in some US cities and the Netherlands, where prostitution is noticeably present. Moreover, a relationship between the prostitution and cryptocurrency communities has been proven. To date, no study has been conducted to find out if this phenomenon is true for the situation in Canadian metropolitan areas.

Collaboration between cryptocurrency companies and authorities is essential to address this issue. Nevertheless, it must be noted that many cryptocurrency-ATM companies have been cooperating with competent authorities by providing them with quality data to fight against money laundering through cryptocurrency.⁹

Training and awareness: Financial institution employees, especially those in roles that involve transaction monitoring and compliance, should be educated about the signs of human trafficking. This knowledge empowers them to spot red flags and report suspicious activities effectively.

Consequences for negligence: Inadequate financial controls and compliance programs can lead to severe consequences for financial institutions. To date, no Canadian financial entity has been linked to a serious violation of anti-money laundering regulations related to human trafficking. However, just because it hasn’t happened so far doesn’t mean it couldn’t happen in the future. The example of Australian bank Westpac's violation of anti-money laundering regulations resulting in a hefty fine illustrates the importance of robust controls.

In 2020, the Australian Transaction Report and Analysis Center (AUSTRAC) reported that Westpac had committed 23 million violations of the anti-money laundering and anti-terrorist financing regulations by, among other things, allowing 250 people to make transfers to the Philippines and Mexico that served to finance and promote the exploitation of children.

The consequences related to these violations were dramatic for the bank. On the one hand, Westpac suffered a considerable financial loss, having to pay a US$1.3 billion fine. On the other, the impact following the exposure in the media was devastating reputationally for the bank. These breaches could have been detected much earlier by having a more effective compliance program, adequate employee training, and a more robust name-screening process and transactional monitoring.¹⁰

Promising initiatives

The Canadian Government has developed efficient legal tools and has made them a central element in the fight against human trafficking and the protection of victims. The Criminal Code, the Immigration and Refugee Protection Act and several task forces connect all entities in Canada fighting against human trafficking. Trafficking in humans  ranks third after drug and weapon trafficking, which is why a whole-of-society approach unavoidable when it comes to making the fight against human trafficking as effective as possible.

While the Canadian Government established The Trafficking in Persons Protocol in 2002,¹¹ Fintrac launched a project by the name of Protect, a collaboration between BMO, other large Canadian financial institutions and the Royal Canadian Mounted Police (RCMP) in 2016.¹² The goal of this project is to update the indicators on laundering proceeds from human trafficking for sexual exploitation. This is meant to further assist businesses in identifying and reporting to FINTRAC financial transactions suspected of being related to laundering funds associated with human trafficking for sexual exploitation.¹³

FINTRAC Director Sarah Paquet summarizes the project: “Working closely with Canada’s financial institutions and law enforcement agencies, FINTRAC is harnessing the power of financial intelligence to help identify the perpetrators — and the broader networks — linked to these appalling acts. Project Protect is a clear and tangible example of the critical role that Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime is playing in protecting the safety of Canadians and the integrity of Canada’s financial system.”

In conclusion, despite the current involvement of many international organizations in the prevention of human trafficking and the establishment of several treaties aimed at protecting human rights, the human trafficking market is expanding, and related activities remain a significant source of income for criminal organizations. The problem is, therefore, multilateral and international.¹⁴

Thus, to eliminate these illicit activities, they must be detected early. This requires the establishment of a common front of all possible and existing resources to fight this type of crime. To do so, government institutions are taking specific measures and carrying out in-depth studies to raise awareness, sensitize and make the public responsible.

Financial entities are responsible for drawing up targeted and effective action plans to impact the fight against human trafficking directly. On the one hand, it is indispensable that they have a competent customer due diligence or KYC program and impactful and thorough internal controls. This is especially important for the in-depth knowledge of their customers for compliance and regulatory reasons, but above all to be aware of institutions’ social responsibility to combat human trafficking.

Since human trafficking is very difficult to detect, financial entities must realize that filtering transactions alone is not sufficient to detect this plague. Financial institutions must start implementing real-time transaction monitoring, a system that uses AI to automatically monitor transactions and other customer activities to identify and prevent financial crimes. Real-time transaction monitoring has the advantage of quickly identifying customer activities that don't match expected or permitted patterns.

Consequently, three factors are crucial to take into consideration in the fight against human trafficking: