2022.12 The Taiwan Banker NO.156 / By Hung-Lieh Liang and Yu-Hsun Li
Banks play a key role against human traffickingBanker's Digest
Recently, there have been frequent reports of Chinese-speaking people being scammed and trafficked to Cambodia and other Southeast Asian countries, arousing public questions about Taiwan’s involvement in trafficking and related money laundering risks. Although human trafficking has been included in Taiwan’s anti-money laundering/counter-financing of terrorism (AML/CFT) threat assessments, in contrast to other threats, it has not been listed as a serious risk item or high threat in its two most recent money laundering and terrorism risk assessment reports. Therefore, the public and private sectors should closely consider whether these reports mean that this has become a major new type of crime or money laundering. In light of the potential crime and money laundering trends implied in these reports, this article defines human trafficking, explains the key points for its prevention and control in Taiwan, and then uses the possible methods or division of labor by human traffickers in Taiwan to explain the criminal offenses that such actions may constitute. Then, it will introduce the key points of the guidelines to combat human trafficking in the financial industry issued by the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury in 2020, supplemented by practical observations from local branches of Taiwanese banks in Cambodia. Three elements of human trafficking The United Nations Office on Drugs and Crime (UNODC) defines human trafficking as consisting of three elements: (1) Action: recruiting, transporting, transferring, harboring or receiving people; (2) Means: abduction, fraud, deception, abuse of power, or exploitation of a position of vulnerability through the use or threat of violence or other forms of coercion, or the receipt of a payment or benefit to obtain the consent of a person who has control over another person; and (3) Purpose: such as sexual services, forced labor, or slavery, or the sale of organs, etc. In addition, according to the UNODC, both human trafficking and human smuggling may involve the same criminal group models or pathways, but victims of human trafficking are bought or sold by illegal coercive means such as fraud and threats. Human smuggling victims, in contrast, voluntarily pay to go to the destination illegally, but may also be trafficked in the process and become a victim of forced labor or sexual exploitation. According to the 2022 Global Report on Trafficking in Persons, human trafficking in Taiwan mainly involves foreign migrant workers (mainly from Southeast Asian countries such as Indonesia, the Philippines, Thailand, and Vietnam), and foreign students who came to Taiwan through an agency. Forced labor or sexual exploitation may occur due to high agency fees or employer disapproval. In view of this, after the Executive Yuan promulgated the Action Plan to Combat Human Trafficking in 2006, it immediately established an inter-ministerial contact platform in 2007, strengthening protection of victims and prosecution of perpetrators through Prosecution, Protection, Prevention, and Partnership. In addition to the existing model – preventive measures against sexual or labor exploitation after foreigners come to Taiwan – Taiwan’s trafficking prevention and control also starts by considering the perspective of people abducted into Cambodia or adjacent areas. In this regard, it is important to consider how the public and private sectors can identify and manage the risks involved in these types of human trafficking, and how banks can monitor related cash flows. Looking at Taiwan’s criminal law system, taking the recent reports of trafficking in Cambodia for reference, the acts that occur in Taiwan may be recruiting, mediating, trading, or using fraud to induce the victim out of the territory of the Republic of China, etc. Such acts may be elements of crimes such as Articles 296-1 and 297 of the Criminal Law and Article 33 of the Human Trafficking Prevention Law. They all have minimum basic sentences of imprisonment for not less than 6 months, and are mentioned in Article 3 of the Money Laundering Prevention Law. Therefore, in accordance with the latter law, financial institutions should include money laundering related to trafficking into the scope of their transaction monitoring to ensure that they can identify such cases, then report them to the Investigation Bureau of the Ministry of Justice. FinCEN: four forms of money laundering FinCEN issued relevant guidelines on typology and red flags on September 11, 2014 and October 15, 2020 respectively, on how financial institutions can identify money laundering risks from human trafficking and smuggling. In the 2020 guidelines, it pointed out the four most common forms of trafficking-related money laundering crimes. · Front companies. After analyzing recent cases, FinCEN found that criminals often use legally established and operating companies to mix illegal gains from human trafficking into general operating income. These companies are usually massage, escort, hairdressing, and beauty services, or else bars and restaurants, etc. These businesses are often in industries where it is easy to conceal forced labor or sexual exploitation, and transactions are usually made in cash. In past cases, criminals have mixed illegal profits into the financial system through front companies, often using them to buy expensive items such as real estate or luxury cars. · Exploitative employment practices. In past cases, victims of trafficking were often exploited by their employers through visa fraud, or by withholding wages, etc. Their employers then distributed the illegal proceeds of their exploitation to other accomplices in the form of remittances or checks, often using reasonable notes such as cleaning fees as cover. Therefore, FinCEN reminds financial institutions to pay attention to multiple employees receiving salaries through the same account, or whether salaries are often withdrawn or transferred to other accounts within a short period after they are recorded. · Funnel accounts. A funnel account refers to an individual or business account responsible for accepting and withdrawing remittances from different regions. Most of the remittances are just below the notification threshold, and there is only a slight time between receiving the remittances and withdrawing them. FinCEN analysis found that human traffickers often open bank accounts in their victims’ names. · Alternative payment methods. In addition to paying in cash, it has recently been found that some traffickers also accept credit cards, prepaid cards, or other mobile payments or virtual currencies for their illegal transactions. FinCEN observed that in recent years, some have used third-party payments using the name of the third-party operator to complete domestic or cross-border transactions. FinCEN also mentioned that since the actions of trafficked persons may be restricted, opening an account at a financial institution or engaging in a transaction may be a small window for them to contact the outside world. In this regard, they mention common suspicious signs for reference by financial institutions, as follows: · A third party speaking on behalf of the client · The third party insists on accompanying the client · The third party attempts to fill out documents or forms without consulting the client · The third party physically holds or controls all documents and funds · The third party claims to be associated with the client, but does not actually know important information about them · The customer uses (or attempts to use) the third party's identification documents to open an account · The third party physically assaults or coerces the customer · The client presents with poor hygiene, malnutrition, starvation, (sexual) abuse, restraint, imprisonment, or torture · The client is unaware of their location/country In addition to this suspicious behavior, FinCEN also mentioned suspicious transaction characteristics, such as: · The transaction differs from the client’s expected activities and/or business model · Most transactions occur outside normal business hours · The client’s contact information (such as phone number or email address, etc.) is connected to escort agency websites · Frequent transactions, most of them are located abroad · Transactions mostly executed through third-party payment providers · Customers avoid transactions that require identification documents or may trigger suspicious transaction reports As mentioned above, the money laundering behaviors derived from human trafficking in Cambodia involved in the recent news should be included in monitoring by banks in accordance with the Money Laundering Prevention Law. Considering that human trafficking and resulting illicit financial flows are most likely to flow into the financial system through banks, banks should consider their own operating conditions in Taiwan and Cambodia (or neighboring countries), and adopt control measures commensurate with the risks. The following will explain some relevant considerations. Taiwanese banks in Cambodia Taiwanese banks in Cambodia (including subsidiaries and branches) generally have a relatively high proportion of natural person customers, and allow domestic nationals to open local accounts. In addition, local branches also allow cash transactions, and some even provide mobile banking services. Many local financial institutions have been alerted to the recent news, and have developed or adopted several control measures. · Industry risk identification: Although local branches in Cambodia allow local nationals to open local accounts, the customer base is still dominated by local Taiwanese businesses, and most industries are industrial (such as textiles, garments, and manufacturing). In the recent incidents, Taiwanese people have been deceived to engage in local industries in Cambodia, often in the internet or tech industries, which is somewhat different from the traditional industry background. Therefore, local branches will refuse to open accounts for Taiwanese nationals if their industry or occupation of is different from the background of local Taiwanese businesspeople. · Motivation for opening an account: Local branches in Cambodia allow Taiwanese nationals –mainly local Taiwanese businesspeople – to open accounts locally, and most of them have business visas or visas with validity of more than six months. Therefore, branches will also refuse to open accounts for Taiwanese nationals with only a tourist visa, or with a validity period less than six months. · Signs of suspicious behavior: The main place of residence or work in Cambodia of the local Taiwanese businesspeople mentioned in the aforementioned incidents is usually not Sihanoukville. Therefore, local banks will refuse to open accounts for Taiwanese people in Sihanoukville, or whose residences are far from the location of the bank. In addition to these points, considering the above-mentioned FinCEN guidelines, which are mainly from the perspective of the importing country of human trafficking, local branches in Cambodia may also consider the following examples of possible methods to monitor clients who are trafficking victims or perpetrators. Victims: Based on the background described in the news, the actions of human trafficking victims are often controlled by their traffickers, and they cannot freely contact the outside world. Referring to the above FinCEN information, some victims may also be taken by their traffickers to open accounts in local banks for their use as personal accounts for illegal transactions or money laundering, so their relationship with their bank may be one of the few opportunities for them to contact the outside world. Therefore, local branches in Cambodia (or nearby) can also pay attention to whether the customer is suspected of being a trafficking victim when monitoring suspicious signs related to the account. Common related signs include the following. · The client is unfamiliar with the local environment (such as the name of the city where they are located) · The customer fails to clearly state the purpose of the business relationship · Lost contact with the client but the transaction activity continues · Transaction locations are not fixed · Transactions are mostly executed through agents Traffickers: With reference to recent cases, since the illegal proceeds from trafficking enter the financial system as cash, and it is reported that most of Cambodian branches of domestic banks provide cash services, it is advisable for these branches to confirm that the threshold parameters related to cash transactions are appropriate, and that transaction channel monitoring methods operate smoothly. In addition, considering that most trafficking cases involve cross-border organized crime, branches may also consider re-examining whether the scope of their existing transaction monitoring mechanisms properly covers cross-border and related transactions. Taiwan headquarters From the perspective of domestic head office operations, since the main role of Taiwan in the recent news events is as the place of human export, banks may monitor the following suspicious signs. Identifying clients as possible trafficking victims: When reviewing customer transactions, banks can pay attention to whether the customer meets the characteristics of trafficking victims mentioned in the news. For example, they can watch young clients who want to open accounts to receive income from work in overseas locations like Cambodia, or with a high-risk work location and type, such as maintenance of overseas casinos or online gaming websites, and the expected income is significantly more the local average income. In addition, when performing daily monitoring, also consider checking the client’s online or mobile banking login status to check for inconsistency with the customer’s background, for example if the IP addresses are in high-risk countries or are abnormally concentrated, or the login device changes frequently, etc. Identifying possible traffickers: Considering that most profits from trafficking involve cash or come from illegal underground transfer channels, suspicious signs and monitoring measures related to cash transactions and head accounts can also be applied to identify possible money laundering transactions related to trafficking. During the warning investigation process, banks should pay attention to any signs of recent trafficking cases, and may consider providing relevant supporting materials to the investigation agency for reference to strengthen the validity of the suspected AML/CFT transaction declaration. Human trafficking is an important ESG issue of global concern. It is necessary for the banking industry to further review its existing AML/CFT framework by understanding related crimes or threats to effectively monitor or detect relevant suspicious behavior or transaction status and block the cash flow of illegal groups. Hung-Lieh Liang is a partner lawyer of PwC Legal in charge of money laundering prevention and legal compliance services in the financial industry. Yu-Hsun Li is a partner lawyer of PwC Legal.