Modern Slavery

Despite being illegal across the globe, in the year 2016, the International Labour Organization stated that around 40.3 million people were enslaved.

Slavery is the status or condition of a person over whom any or all of the powers attaching to the right of ownership are exercised.  Put simply, someone is enslaved when they are treated as if they were owned by another person.

By modern slavery is meant different types of exploitation: debt bondage, forced labour and human trafficking for instance.

Debt bondage is likely the most prevalent form of modern slavery, when one person has pledged their labour and when the fair value of that labour is not reasonably applied to reduce the debt.

Trafficking in humans involves the trade of persons in the form of prohibited exploitation; like for example forced labour, sexual slavery or commercial sexual exploitation.  Human trafficking is often referred to as being the second largest criminal enterprise in the world and is all over the world.

What is the link between Modern Slavery and the Financial World?

Generating over USD 150 billion each year, modern slavery is the third largest source of criminal profits globally. And those funds are moving around via the financial system.

Modern slavery itself is not one of the FATF predicate offences, but human trafficking or sexual exploitation are, falling under the AML regulations. Financial institutions can come across it, during either their direct operations with people and companies organizing the traffic or the people being abused, or through the customer of your customer, by sending or receiving payments from third parties.

In 2018 Western Union was fined $60 million by the New York State Department of Financial Services in view that they breached AML laws in relation to Human Trafficking.  Furthermore, Westpac in Australia have been alleged of breaching its AML obligations, which were related to the use of its payment system for online sexual exploitation of children in Philippines.  Apart from the potential AML fine which Westpac are facing, they also had a significant effect on the company’s share price, which eventually led to the resignation of both the Board Chair and its Chief Executive.

How the Banks and Financial Institutions can detect Modern Slavery?

Customer Due diligence is key here, know your customer, and also know the customer of your customer.  Some specific ‘red flags’ that should trigger particular attention for banks and financial institutions are the below:

• Stolen and or falsified identity documents.
• Third parties trying to open accounts on behalf of others and attempting to populate the paperwork of the original customer.
• Different types of handwriting and or does not tally with the main customer.
• The use of multiple addresses and or address provided is not reliable.
• False and or fake documents related to work contracts.

It is also of paramount importance that both banks and financial institutions keep track and analyse the financial transactions of their customers; in other words, Transaction Monitoring.  Normally banks and financial institutions have their own Transactions Monitoring tools / programs, some of which are inhouse built, whilst others are purchased programs.   Below are some ‘red flags’ in relation to Transaction Monitoring:

• Account usage is mainly in cash / high volume of cash deposits.
• Funds transfers from other individuals and other third parties with narrative providing other names of people.
• Credit card payments made not in the normal business hours of the business related to strip clubs and massage parlours.
• Outbound international wire transfers to countries renowned for human trafficking or in areas known to trafficking routes.
• The use of virtual currencies / Bitcoin and making frequent purchases in small amounts and or using exchanges.
• ATM usage from the same ATM machine and at the same time possibly indicating that the card is being used and controlled by a third party.

Constant fight

But beyond CDD and Transactions Monitoring, it is the whole Anti-Financial Crime Framework and the Culture of the Banks and Financial Institutions which has to focus on this crucial issue, by providing sufficient importance in the Enterprise-Wide Business Risk Assessment for instance, or within the training program, to ensure that all of the effort is given to identify, deter, detect and disrupt these illicit activities.