The House Financial Services Committee, through its Subcommittee on Oversight and Investigations, held a hearing on Jan. 30 to explore how human traffickers exploit U.S. financial markets. It looked at how financial institutions monitor, review, and verify depository relations with a payment processor and better understood potential problems and long-term challenges that exist, including examples of how human traffickers avoid detection.
“As with any large multi-national criminal enterprise, the life blood of human trafficking is the ability to transfer money,” said Subcommittee Chairman Ann Wagner (R-MO). “If the traffickers are unable to move their ill-gotten proceeds, or to purchase adds to traffic victims on sites such Backpage or the Erotic Review—their schemes fail. To date, Congress has not devoted sufficient attention to the vitally important question of how do we ensure that our financial markets are not being exploited by these traffickers. That changes with this hearing, which is the opening step of the Committee’s bipartisan investigation into this important issue.”
The subcommittee heard testimony that human smuggling and trafficking have been among the fastest growing forms of transnational crime. Understanding how human traffickers exploit U.S. financial markets is key to combatting this form of modern day slavery, experts said.
“Financial institutions have an excellent grasp on fraud prevention, detection, and mitigation,” testified Bassem Banafa, a financial forensics consultant. “The threat of a potential loss justifies the resources required to address fraud effectively. The threat also creates a clear performance indicator—higher losses are bad, lower losses are good. This is not the case with money laundering, and consequently not the case with payments processed for human trafficking rings and other criminal organizations. There is no clear benefit to the institution other than the vague idea that they’ve avoided reputational risk and trivial sanctions and penalties.”
Banafa argued that “ratcheting up the pressure on financial institutions to capture more and more instances of money laundering or human trafficking,” may not ne the best solution. Instead, he called for taking a cue from the recent California state law, SB 272.
“This law requires local agencies to create catalogs of enterprise systems describing the data collected, application used to collect the data, the vendor, the system’s purpose, the department responsible, and the frequency that the data is updated,” he said. “A database of catalogs describing these kinds of systems at financial institutions would provide the information on subpoena surface area necessary to conduct complex money laundering investigations, it would protect consumer privacy by allowing law enforcement to narrowly craft subpoenas and search warrants, and it would reduce inordinate pressure on financial institutions to police their own customers beyond what current law requires.”
“To combat human trafficking, we need to be ever more reliant on the emerging capability of the banking community to analyze its data in a proactive way, to help locate cases of human trafficking,” said Louise Shelley, founder and director of the Terrorism, Transnational Crime and Corruption Center at George Mason University. “Following the money and the patterns of human trafficking in big data allows law enforcement to build effective cases without placing victims in jeopardy. This is cost effective, as banks are already allocating significant resources to countering money laundering. This new approach requires public-private partnerships of which we already have several excellent examples to build on.”