Indicators: The laundering of illicit proceeds from human trafficking for sexual exploitation

FINTRAC-2016-OA003
December 15, 2016

Indicators: The laundering of illicit proceeds from human trafficking for sexual exploitation (PDF version, 245 KB)

Operational Alerts provide up-to-date indicators of suspicious financial transactions and high-risk factors related to specific methods of money laundering and terrorist activity financing that are important either because they represent new methods, re-emerging methods or long-standing methods that present a particular challenge.

Purpose

The purpose of this Operational Alert is to support financial institutions in recognizing and reporting completed or attempted financial transactions that are suspected of being related to the laundering of funds from the trafficking of victims specifically for sexual exploitation, and not forced labour. The indicators in this document were synthesized from the Financial Transactions and Reports Analysis Centre of Canada's (FINTRAC) intelligence holdings and reflect the Centre's engagement with Canada's financial institutions and police services in their efforts to detect, deter and prevent money laundering and terrorist financing activity.Footnote 1

Background

The crime of human trafficking which, according to the Criminal CodeFootnote 2 of Canada includes both sexual exploitation and forced labour, is often confused with human smuggling. Unlike human smuggling, which involves the transportation of individuals from other countries who have consented to a service for an agreed upon fee, human trafficking involves the coercion of victims into servitude for financial gain.Footnote 3 Sexual exploitation, which is reported to be more prevalent than forced labourFootnote 4, has gained considerable attention as a pervasive crime that can only be solved through collaboration by government, law enforcement, the private sector and others.Footnote 5 Human trafficking is among the fastest growing criminal activities, occurring internally within countries and between countries worldwide.Footnote 6 Both foreignFootnote 7 and CanadianFootnote 8 studies suggest that the majority of victimization occurs domestically. In Canada, police-reported incidents of human trafficking have increased overall from 2009 to 2014 with rates nearly doubling between 2013 and 2014.Footnote 9 Canada is a source, transit and destination country for men, women and children trafficked for the purposes of sexual exploitation. The money laundering indicators in this document apply equally to victims trafficked in Canada regardless of origin. 

Research suggests that human trafficking for sexual exploitation, like drugs and weapons trafficking, is just another commodity in a range of criminal activities perpetrated mostly by domestic and foreign organized crime groups who often collaborate with each other to maximize illicit financial gain.Footnote 10 Sexual exploitation is a high-value business for criminals because, unlike a drug that can only be sold once, a human being can be sold repeatedly over an extended period of time. This type of crime is also attractive to criminals because the risk of losing business due to detection and successful prosecution is kept low through coercion of their victims in combination with the use of well-known money laundering methods. As a result, the perpetration of this crime is reinforced because criminals are able to benefit from the illicit proceeds.

Recognizing the money laundering activity of human traffickers in sexual exploitation

Who may be involved in money laundering

In looking for indicators of money laundering, it is important to consider contextual factors which, although not indicators on their own, provide insight into how businesses may be targeted by criminals in an attempt to launder funds that have been generated by sexually exploiting victims. Consisting primarily of young Canadian-born women and girls as young as 12 years of age, victims come from various backgrounds and are coerced or compelled into servitude through various means.Footnote 11 Victims can also be used to facilitate money laundering by acting as personal/business account holders, or by handling cash deposits that are below the reporting threshold. Traffickers in Canada are typically male and born in Canada. A small percentage of females act as traffickers and may also be former victims of sexual exploitation. They usually work with at least one male in a partnership that is sometimes relationship-based. Traffickers work with friends, trusted associates, family members, boyfriends/girlfriends, or other females involved in prostitution.Footnote 12

Reasonable grounds to suspect and how to use indicators

Criminals disguise their money laundering methods through what they hope will appear to be normal financial transactions in a normal business context. As a result, the decision to submit a suspicious transaction report to FINTRAC (for either a completed or attempted financial transaction) requires more than a "gut feel" or "hunch," although proof of money laundering is not required. Reporting entities are to consider the facts related to a transaction and its context that can, when taken together, give rise to reasonable grounds to suspect that the transaction is related to the laundering or attempted laundering of proceeds of crime.

Indicators of money laundering can be thought of as red flags indicating that something may very well be wrong. Red flags typically stem from one or more characteristics, behaviours, patterns and other contextual factors related to financial transactions that make them appear inconsistent with what is expected or considered normal. The review of the trail of indicators may follow various scenarios and lead to different conclusions depending on whether the level of suspicion is strengthened or weakened.

When a reporting entity concludes that another individual, with similar knowledge, experience or training, having reviewed the same material, would likely come to the same conclusion that there are reasonable grounds to suspect that a financial transaction (completed or attempted) is related to illicit funds, then the reporting entity must submit a suspicious transaction report to FINTRAC. The reasons for having reasonable grounds to suspect, as well as the details and facts associated with the indicators that led to those grounds, must be included in the report.

Although some indicators listed in this document, when taken on their own, may identify victims of sexual exploitation or those facilitating the crimeFootnote 13, the decision to submit a suspicious transaction report requires that a financial transaction be completed or attempted, and that the relevant indicators raise suspicion of money laundering in relation to that transaction. FINTRAC's Guideline 2 on Suspicious TransactionsFootnote 14 provides more comprehensive guidance and additional indicators that may be useful either as initial triggers or in addition to the indicators listed in this Operational Alert.

Indicators

The following indicators are specific to human trafficking for sexual exploitation and reflect types and patterns of transactions, contextual factors and those that emphasize the importance of knowing your client.  These indicators and other facts surrounding a financial transaction should be considered as a whole. This is important because a single transaction taken in isolation may lead to a false assumption of normalcy. Considering all indicators may reveal otherwise unknown links that taken together could lead to reasonable grounds to suspect that the transaction consists of proceeds from human trafficking.

Types of financial transactions

Patterns of financial transactions and account activity

Contextual indicators

Know your client

Contact us

Please use "Operational Alert" with the reference number in the subject heading of your communications with FINTRAC, and in any related STR/TPR reporting to FINTRAC:

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