• In this second piece in a four-part series by the Anti-Human Trafficking Intelligence Initiative (ATII), the group tackles how criminal groups exploit the gaps between, in and around brick-and-mortar banks, crypto and credit cards.

• In a growing number of cases, trafficking groups are swimming together multiple laundering techniques to make it as difficult as possible for individual entities in the public and private sectors to put all the pieces together of the financial network and related laundering cycles.
• But these groups are fighting back. Financial institutions, credit card companies, payment processors, crypto exchanges and large retailers – the groups doling out the bulk of prepaid cards – are working to better collaborate, then further overlaying that scattered mosaic with darknet data and analytics.
• The result: an agile, informed and diverse community of companies, banks and cross-trained compliance professionals defending all forms of financial crime and divining and detailing the actions of human traffickers – and really all illicit threat actors – whether they attempt to run and hide in the real world, virtual realms and everywhere in between.

By Mackenzie Martinez
Special contributor, ATII
July 8 , 2021

With minor edits and content additions by Brian Monroe, VP of Content, ACFCS

This story was originally published by the Anti-Human Trafficking Intelligence Initiative. Republished with approval and appreciation. To read the original piece, click here.

In this second piece in a four-part series by the Anti-Human Trafficking Intelligence Initiative (ATII), the group tackles how criminal groups exploit the gaps between, in and around brick-and-mortar banks, crypto and credit cards.

This blog series dives into the many avenues traffickers follow to hide their crimes and highlights criminal cases illustrating such efforts. Some methods have long been utilized, while others are just beginning to emerge.

Understanding how human traffickers exploit international economics will help inform how we can most effectively follow the money to fight slavery.

This piece also touches on current initiatives by top banking groups, crypto exchanges, credit card companies, retailers and prepaid card operators to engage in cross-industry information sharing and supercharge their collective intelligence with darknet analytics, leaving no refuge, corporeal or digital, for criminals to hide their ill-gotten gains.

Much of the information from this blog series comes from Louise Shelley’s “Human Trafficking and the International Financial System,” which can be found here (link).

That report was part of prepared statements by many of the top minds in the financial crime investigations and compliance fields discussed during a virtual hearing – “Ending Exploitation: How the Financial System Can Work to Dismantle the Business of Human Trafficking.”

The hearing took place March 25 before the House Committee on Financial Services, subcommittee on National Security, International Development and Monetary Policy.

To read the full list of prepared statements and view a recording of the hearing, click here.

Cryptocurrency: Criminals, Buyers Turn to Virtual Value to Muddy Money Trail

Cryptocurrency is a digital currency that is becoming increasingly coveted by criminals for its pseudo-anonymous and nearly untraceable nature.

Examples include Bitcoin, the world’s most popular cryptocurrency, Ethereum, and Dogecoin.

Cryptocurrencies are used by traffickers to purchase advertisements and by sex buyers to purchase premium memberships on review board websites.

These are members-only platforms where the users of illicit sex operations – be they an individual sex worker or, say, an illegal massage parlor – rank the willingness, depth of depravity and price of workers.

In a growing number of cases, trafficking groups are swimming together multiple laundering techniques to make it as difficult as possible for individual banks, prepaid card operators, virtual value exchanges and law enforcement investigators to put all the pieces together of the financial network and related laundering cycles.

For instance, some trafficking networks will buy open-loop prepaid cards – such as a gift card that acts and looks like a debit or credit card to a payment processor – just below ID thresholds, making them essentially anonymous.

The group will then use them to purchase virtual currencies and further move the value through exchanges with weak anti-money laundering (AML) controls and in jurisdictions rife with corruption and historically lax counter-crime compliance defenses.

To that end, FinCEN has issued warnings of traffickers using multiple layers of payment along with cryptocurrency to protect their identities, as demonstrated in a recent case study.

Case Study: Welcome to Video – The Financial Networks Behind Exploiting Children

Human traffickers, and other groups that find and share illicit images of exploited children, make hundreds of thousands of dollars at a minimum annually from selling of the acts themselves and profiting from images and videos – vile media that in most countries is illegal to even possess.  

The website “Welcome to Video,” which was a platform for child sexual abuse material (CSAM) on the dark web, handled membership through a cryptocurrency-based points system.

To ensure users had a stake in the effort – and to possibly ward of law enforcement infiltration – in order to view more videos, members were required to either upload their own new content (gaining points for the number of views from other members), or to pay for new videos using Bitcoin.

Federal authorities shut the site down in 2018, but numerous other sites have subsequently developed as replacements.

To Counter Traffickers, Protect Children, Country FIUs Band Together

More broadly, banks are trying to band together to better identify transaction patterns tied to exploiting children, particularly tied to online streaming.

That is one of the goals set out by the Egmont Group of Financial Intelligence Units (FIUs), which include many of the largest countries in the world.

The group, as part of a jointly-led project by Austrac, Australia, UKFIU, United Kingdom and AMLC, Philippines, is collaborating with INTERPOL and the FIUs from around the globe to better understand the financial and banking components of the online streaming of child sexual abuse and exploitation (CSAE) material.

To review the group’s just-released findings, click here.

The Egmont Group report also noted the potential involvement of organized crime in such exploitation networks.

“In impoverished communities, online streaming offers a financial incentive for criminal networks, which creates a commercial element for CSAE,” according to the group.

“The illicit business models in relation to this activity, whereby offenders pay to view CSAE material via online streaming, means there is a money trail in the form of payments and profits.”

While it is noted that a lack of large profits means wide-scale involvement of organized criminal groups (OCGs) is likely to be limited, there “is some evidence of criminal business structures in developing countries exploiting the commercial opportunities presented by online streaming of CSAE.”

Case Study: West Side City Crips and Payment Layering through prepaid, crypto

Beyond international organized criminal groups, low level street gangs have also used online ads, and the further complexities of virtual value, to monetize skin and sin.

In April 2016, federal investigators discovered members of the West Side City Crips gang from Phoenix, Arizona trafficking women out of a motel in El Paso, Texas.

Homeland Security Investigations found evidence through one gang member’s mobile phone and Bitcoin wallet that the group was purchasing Vanilla Visa prepaid credit cards, using these prepaid cards to purchase Bitcoin, and using those bitcoins to purchase sex ads on the now defunct online classified site, Backpage.  

Federal agencies seized and shut down Backpage and its affiliated websites in April 2018, with the founders and five others indicted on federal charges of facilitating prostitution and using foreign banks to hide revenues.

The bust roughly coincided with the U.S. government pushing and the President signing a pair of laws — the Fight Online Sex Trafficking Act (FOSTA) and the Stop Enabling Sex Traffickers Act (SESTA) — that added harsher penalties to sites knowingly supporting prostitution or sex trafficking.

In some estimates, the specter of the new laws and dominant player Backpage exiting the market led to a drop of more than 80 percent of online sex ad revenue – a gulf that was nearly refilled just months later with revenues rebounding some 75 percent, according to law enforcement analyses and industry estimates.  

Similarly, banks have had to quickly adapt, cognizant that when criminals lose one avenue to sell sex, they quickly find another.

With Backpage’s downfall, other sites, such as “Skip the Games,” among others, have seen a surge in use, allegedly by organized criminal, trafficking and sex worker groups, according to media reports.

The site portrays itself as a dating platform, though it is replete with pics of scantily clad women, some brazen enough to detail the sexual services they are willing to engage in – with nary of mention of pricing.

Prosecutors say the site handsomely profits from sex, while company representatives say they cannot always police the infiltration of illicit trafficking groups due to limited resources, and, to the contrary, routinely help and respond to law enforcement requests for information and assistance.

Banks: Compliance Cracks in the Brick-and-Mortar of World Finance  

In a bevy of cases, both in the United States and abroad, the proceeds of trafficking operations have been moved through and parked in banks.

Perpetrators can exploit the vulnerabilities in banking systems to assist in the economics of human trafficking.

For this reason, it is essential that financial institutions practice social corporate responsibility and track suspicious account activity with the hallmarks, indicators and red flags of human trafficking.

These can include, for instance, massage parlors and nail salons with late night credit card transactions, funnel accounts and, the biggest transactional tell of them all: credit card cancellations in the double digits in the same year.

In some extreme cases, the banks themselves can deliberately – and in other cases unwittingly – aid in the facilitation of criminal activity.

Banks can enrich their anti-human trafficking toolkits with ATII’s large database containing known criminal activity and patterns of trafficking in finance.    

Case Studies: Banking Scandals Expose Illicit Ties to Trafficking Networks

In a California investigation from 2016, 50 different accounts were used to launder the proceeds of human trafficking, according to media reports and the Ventura County Sheriff’s Office.

More recently, in July 2020 Deutsche Bank agreed to pay a $150 million penalty to the New York State Department of Financial Services “for significant compliance failures in connection with the Bank’s relationship with the Jeffrey Epstein,” a wealthy and politically connected, convicted sex offender.

Deutsche “failed to properly monitor account activity conducted on behalf of the registered sex offender despite ample information that was publicly available concerning the circumstances surrounding Mr. Epstein’s earlier criminal misconduct,” the regulator stated in penalty documents.  

The result was that the institution “processed hundreds of transactions totaling millions of dollars that, at the very least, should have prompted additional scrutiny in light of Mr. Epstein’s history.”

The banks failings included:

• payments to individuals who were publicly alleged to have been Mr. Epstein’s co-conspirators in sexually abusing young women;  
• settlement payments totaling over $7 million, as well as dozens of payments to law firms totaling over $6 million for what appear to have been the legal expenses of Mr. Epstein and his co-conspirators;
• payments to Russian models, payments for women’s school tuition, hotel and rent expenses, and (consistent with public allegations of prior wrongdoing) payments directly to numerous women with Eastern European surnames; and
• periodic suspicious cash withdrawals — in total, more than $800,000 over approximately four years.

There was also a cascade of compliance missteps that kept Epstein in business, according to the NYDFS.

The already “substantive” compliance issues were “compounded by a series of procedural failures, mistakes, and sloppiness in how the Bank managed and oversaw the Epstein accounts.”

For example, “certain conditions imposed upon the Epstein accounts by a Bank reputational risk committee were not transmitted to the majority of the account relationship team and were misinterpreted by a compliance officer in a way that resulted in very little actual change in how the monitoring of the accounts occurred.”

The conditions “if followed, might have detected and prevented many subsequent suspicious transactions,” according to the enforcement action. “Throughout the relationship, very few problematic transactions were ever questioned, and even when they were, they were usually cleared without satisfactory explanation.”

To read the full NYDFS action, click here.

“Despite knowing Mr. Epstein’s terrible criminal history, the Bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions,” said NYDFS Superintendent Linda Lacewell at the time.

While not connected to Epstein or to the specific crime of human trafficking, Deutsche bank also had correspondent relationships with Danske Estonia and FBME Bank – two banks entrenched in high-profile money laundering scandals at the time, further evincing that the German megabank had systemic compliance failings.  

The scandal against Danske, Denmark’s biggest bank, originated after it failed to adequately scrutinize about 200 billion euros in non-resident flows through its Estonian operations, much of it from Russia and subsequently deemed suspicious.

In Battle in the Bush, Lessons for Compliance Teams to Safeguard Children

Bank struggles to counter traffickers and other illicit groups are not limited to Europe and the recent enforcement upheaval in the Nordic and Baltic regions.

In September, the land down under took over headlines for financial crime compliance failings – with a tendril to profiting off of human misery.

After months of haggling, behind the scenes negotiations and a widely-watched game of brinkmanship on both sides, Australia’s top financial regulator issued a record, statement making penalty of more than $1 billion against one of the country’s largest banks for fincrime compliance failings – the most serious of which tied to exploiting children.

In the action, the Australian Transaction Reports and Analysis Centre (Austrac) and Westpac agreed to a $1.3 billion penalty – less than the originally ballyhooed $1.5 billion the regulator initially sought, but far more than the $900 million set aside by the bank, a figure the institution said it would not budge.

The millions of AML failings involving billions of dollars in transfers formed the foundation of the fine, an amount that “reflects the seriousness and magnitude of compliance failings by Westpac,” according to Austrac.

To read the announcement, statement of facts and notice of filing, click here, here and here.

The penalty had several key takeaways for fincrime compliance professionals in Australia – and the world over.

In essence, AML teams must better get to know the nuanced transaction trails tied to child exploitation networks, just as they have in recent years tied to human trafficking, and keep better oversight of regions at a higher risk for child exploitation, including through leaky correspondent portals.

Credit Cards: Victims Victimized Physically, Fiscally

Credit cards are often used to pay for online advertisements for sexual services.

The name of the payee is often disguised so as not to arouse suspicion from payment processors, especially since the passage of the FOSTA-SESTA acts.  

In some instances, traffickers can utilize their victim’s identities to gain access to credit cards.

But even as trafficking groups try to hide their formal touchpoints with the financial sector, the massive movement of human and financial capital is difficult to fully obfuscate.

At its heart, human trafficking is described as illegally transporting people from one country or area to another, in many cases for the purposes of forced labor or sexual exploitation, according to analyses and media reports.

According to the U.N.-backed International Labor Organization (ILO), globally it is estimated that some 40 million people have been affected by this industry, both willingly in terms of trying to make a better life for themselves, and in other instances, taken advantage of by illicit organized criminal gangs.  

The profits of this crime are also massive.

In a 2014 ILO report, human trafficking earns a profit of nearly $150 billion annually, with more than half of the profits coming from sexual exploitation.

That makes the sex and labor trafficking industry second only to drug trafficking as the world’s largest criminal industry, according to ILO and the nonprofit Polaris Project, key figures not lost on global watchdog groups, domestic and international investigative agencies and international banking groups.

Case Study: The Efforts of FCACP

The Financial Coalition Against Child Pornography (FCACP) works with The National Center for Missing & Exploited Children (NCMEC), and its sister agency, the International Centre for Missing & Exploited Children (ICMEC).

FCACP is a coalition of credit card issuers and Internet service companies that seeks to eliminate commercial child pornography by acting on the payment systems that are used to fund these illegal operations.

Many of the payments for the purchase of child pornography have been made through credit cards, making the work of this coalition significant.

To help organizations recognize various risks of human trafficking and child sexual abuse material within their line of work, ATII has developed two inter-connected consortiums.

The Anti-Human Trafficking Cryptocurrency Consortium (ATCC) is comprised of crypto exchanges, crypto kiosk suppliers and data companies.

The Anti-Human Trafficking Retail Consortium (ATRC) brings together risk management leaders from large retail corporations, such as Walmart, BestBuy and Target.

Both consortiums were developed to foster cross-industry communication and to share resources to combat human trafficking where they can, including in their compliance programs, trainings, and high-risk trafficking and crypto wallet data.

For more information, see these flyers for ATCC (link) and ATRC (link).

Bringing It All Together: When banks, retailers, crypto firms stand shoulder to shoulder

One of the most powerful potential ways to counter trafficking networks is by attacking all of the interwoven and attenuated laundering methods these groups use at the same time – leaving them nowhere to hide.

How?

By getting brick-and-mortar banks, credit card companies, payment processors, crypto exchanges and large retailers – the groups doling out the bulk of prepaid cards – to communicate, coordinate and collaborate to put all the pieces together, then further overlaying that scattered mosaic with darknet data and analytics.

The result: an agile, informed and diverse community of companies, banks and cross-trained compliance professionals defending all forms of financial crime and divining and detailing the actions of human traffickers – and really all illicit threat actors – whether they attempt to run and hide in the real world, virtual realms and everywhere in between.

This blog post detailed how human traffickers utilize cryptocurrencies, banks, and credit cards to facilitate their crimes.

These methods, especially they use of crypto, are quickly advancing alongside technological evolution. The next post will dive into the various forms of money laundering used for trafficking activity.