Finance Monthly - April 2023

which is more of a crime against the border than the person(s) involved. There are instances in which human smuggling turns into trafficking when a debt needs to be paid and the person(s) being smuggled, or their family members, are forced into labour to pay off that debt. In many instances, the “payment” could go on for years as they receive very little compensation for their services. Human traffickers use the global financial system to conduct business and launder the proceeds. Regulators have identified many red flags associated with human trafficking to help combat these activities. Transportation is one of the tip areas for scrutiny as one tracks human traffickers. Investigators look for high value and volumes of fast-food purchases at major transportation hubs and purchases inconsistent with an individual’s stated purpose or business. Fast forward to today, expansive global regulations have been established, specific directives have been released for the EU, and the number of country members for the Financial Action Task Force (FATF) has increased. Many guidance efforts and regulations centre on financial institutions, the source, the intermediaries, and the destination of the illicit funds. And with this growth in regulation, there is a corresponding increase in the cost of anti-money-laundering, both in terms of what it costs to go after it and the level of fines for those who do not comply with regulatory guidelines. According to a 19 January 2023 report by the Financial Times, financial institutions globally were fined nearly $5B in 2022. Although this uptick was almost 50% over 2021, it was an almost 40% drop compared to 2019 and 2020. The fines can be significant, and the cost to fix an AML shortcoming can be daunting. Human Trafficking is Expanding For years, the industry has estimated that the amount of money being laundered is between $1T and $2T; however, in some studies, it was estimated that the number could be as high as $6T. Unfortunately, despite the significant efforts being made, less than 0.1% of the money being laundered today is recovered, and a surprising 90% of money laundering crimes go undetected. Criminal activities continue, and the illicit funds generated are still being laundered to make them valuable to criminals. What is the source of all these funds? It is no surprise that the drug trade industry is a vast contributor and sits at the number one position. But after drug dealing, human tracking is the second largest contributor to money laundering. According to the US Department of Homeland Security, “After drug dealing, human trafficking is tied with the illegal arms industry as the second largest criminal industry in the world today, and it’s the fastest growing.” It is estimated these crimes generate over $150B annually. 5.4 out of every 1000 people globally are victims of modern slavery, which equates to approximately an estimated 40.3 million victims. It is essential to understand what human trafficking is. Human trafficking is a crime that involves coercing a person to provide labour or services, engage in sex acts or forced labour to pay debt. Human trafficking has nothing to do with crossing borders; that is, smuggling “After drug dealing, human tracking is the second largest contributor to money laundering.” Bank i ng & F i nanc i a l Se r v i ce s 20 Finance Monthly.

RkJQdWJsaXNoZXIy Mjk3Mzkz