Updated Indicators: Laundering of proceeds from human trafficking for sexual exploitation
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Reference: FINTRAC-2021-OA001July 2021
Updated Indicators: Laundering of proceeds from human trafficking for sexual exploitation (PDF version, 671 KB)
Purpose
This Operational Alert updates FINTRAC’s 2016 Operational Alert “Indicators: The laundering of illicit proceeds from human trafficking for sexual exploitation” with additional indicators in support of Project Protect to assist reporting entities in recognizing financial transactions suspected of being related to the laundering of proceeds associated to human trafficking for sexual exploitation. Through financial transaction reports, FINTRAC is able to facilitate the detection, prevention and deterrence of all stages of money laundering (placement, layering and integration) and the financing of terrorist activities by providing actionable financial intelligence disclosures to law enforcement and national security agencies.
Background
Human trafficking is often confused with human smuggling, although these crimes can overlap. Human smuggling involves individuals who voluntarily consent to be illegally moved across an international border by other individuals for an agreed-upon fee. Human smuggling always involves an international border, is consensual, and the relationship between the smuggler and smuggled person usually ends once the smuggled person arrives at their destination country. Conversely, human trafficking can occur both within a country’s own borders and through international movement, is not consensual (the trafficked person does not consent to being exploited), does not end upon crossing a border, and involves forcing or coercing the trafficked person to provide their services (typically through sexual exploitation or forced labour). In some cases, a smuggled person can become a victim of human trafficking when they arrive at their destination.
Project Protect
is a public-private partnership initiative led by the Bank of Montreal, supported by Canadian law enforcement agencies and FINTRAC. First launched in 2016, Project Protect targets human trafficking for sexual exploitation by focusing on the money laundering aspect of the crime. The objective of the project is to improve the collective understanding of the crime, and to improve the detection of the laundering of proceeds from human trafficking for sexual exploitation.
Human trafficking for sexual exploitation is reported to be more prevalent than forced labour. Canada is a source, transit and destination country for men, women and children trafficked for the purposes of sexual exploitation. Traffickers exploit their victims primarily for financial gain. The money laundering indicators in this Operational Alert apply equally to victims trafficked in Canada regardless of their origin.
What is human trafficking?
“Human trafficking, also referred to as trafficking in persons, involves recruiting, transporting, transferring, receiving, holding, concealing, harbouring, or exercising control, direction or influence over that person, for the purpose of exploitation, generally for sexual exploitation or forced labour.”
Public Safety Canada: “National strategy to combat human trafficking 2019-2024”
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 organized crime groups who often collaborate with each other to maximize illicit financial gain. 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. The International Labour Organisation (ILO) estimates that global proceeds from human trafficking amount to USD 150 billion per year with USD 99 billion sourced specifically from forced sexual exploitation.
In Canada, the number of police-reported incidents of human trafficking has been on an upward trend since 2011 with the highest number to date reported in 2019.Footnote 1 Yet, most cases of human trafficking are not reported to police due to the reluctance or inability of victims and witnesses to come forward. Footnote 2 The Covid-19 pandemic has not curtailed human trafficking in Canada and has caused many individuals to be more vulnerable to this crime.
A recent studyFootnote 3 by the Canadian Centre to End Human Trafficking (CCEHT) found that exploitation through escort services distantly followed by illicit massage businesses were the most common forms of human trafficking for sexual exploitation in Canada. Further, the CCEHT identified several human trafficking corridors in Canada connecting commercial sex markets within and across Canadian provinces.
Overview of FINTRAC’s analysis of disclosures related to human trafficking for sexual exploitationFootnote *
FINTRAC analyzed a sample of approximately 100,000 transactions disclosed from 2018 to 2020 in FINTRAC disclosures related to human trafficking for sexual exploitation. The majority of human trafficking for sexual exploitation-related FINTRAC disclosures primarily concerned victims providing sexual services at short-stay locations (e.g., hotels). Nearly all victims in FINTRAC’s sample were in this category. However, FINTRAC identified two other business models of where sexual exploitation occurred: exploitation at illicit storefront businesses offering sexual services (e.g., spas, massage parlours, private clubs), and at private residences (e.g., apartments) with some crossover between these three categories. All used advertisements of escort services to obtain clients and some traffickers operated their own escort agencies.
Overall, victims were nearly all females and 60% were under 25 years old at the time of their transactions and some were minors. Traffickers were mostly males aged between 24 and 36 years old. Female traffickers were mostly aged between 27 and 32 years old, albeit most were also victims and connected to male traffickers.
Traffickers who exploited their victims out of private residences or in illicit storefront businesses offering sexual services, however, were mostly older females (usually over 40 years old) and many operated with their spouses. Some traffickers in these categories also trafficked victims in short-stay locations and/or were associated to traffickers in those networks.
Overall, email money transfers and cash deposits were the primary transactions in human trafficking for sexual exploitation-related disclosures. Additionally, FINTRAC observed several money laundering methods in the disclosures. These included the use of online casinos, casinos, virtual currencies, prepaid credit cards, gift cards, nominees, front companies owned by traffickers or their associates, funds layered between related accounts, and investment accounts.
In addition to human trafficking, many traffickers were also involved in or suspected to be involved in other criminal activities (e.g., drug trafficking, fraud) and were members or associates of criminal groups. Many traffickers used their victims to conduct other crimes. Therefore, the money laundering methods observed were likely also used to launder proceeds generated from other criminal activities and are not necessarily specific to human trafficking.
Traffickers frequently used nominees to funnel proceeds of crime, pay for human trafficking running costs, launder funds, or conceal beneficial ownership. These nominees were often victims and family members of traffickers. Victims were used as intermediaries to funnel funds to traffickers and other victims. Some victims had roles within human trafficking rings to collect funds from other victims. Some traffickers also had access to their victims’ accounts or held joint accounts with victims. The family members in FINTRAC’s sample were usually traffickers’ parents and spouses but also included their siblings, and adult and minor children.
Traffickers and victims often purchased virtual currencies with funds sent directly to virtual currency exchange businesses sometimes doing so immediately after receiving several email money transfers from third parties. However, several traffickers and victims also sent email money transfers to individuals who purchased virtual currencies on behalf of others. One such individual advertised their intermediary virtual currency services on escort websites.
Prepaid credit cards was another method traffickers and victims used to launder funds and to pay for human trafficking-running costs (e.g., escort ads, hotel bookings). Indeed, EUROPOL detected an increased use of prepaid credit cards among human trafficking organized crime groups for money laundering purposes.Footnote 4 FINTRAC also observed that some traffickers used prepaid credit cards as a means to provide funds to their victims. These traffickers transferred funds from their prepaid credit card to their victim’s prepaid credit card.
Traffickers and victims conducted transactions at casinos. In-person casino transactions were not observed beyond early 2020, highly likely a result of government restrictions imposed on businesses in response to the Covid-19 pandemic. Additionally, FINTRAC observed a significant increase in transactions involving online casinos in 2019 and 2020 indicating that this is an upward trending money laundering method.
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