Evolving UK people smuggling policy requires new approach from financial crime teams

UK financial crime teams will need to revamp their control frameworks to identify finance links to people smuggling, in light of evolving national policy. This year the UK government is creating a sanctions regime targeting trafficking and has ramped up warnings about spotting associated money laundering. The aim is “to cripple people smuggling crime rings and starve them of illicit financing fuelling their operations”, the government said.

Firms should develop their financial crime risk assessments, screening programmes, transaction monitoring, and customer onboarding processes to detect and prevent abuse by human traffickers, according to financial crime experts. This includes looking out for modern-day slavery and sexual exploitation typologies as these often go hand-in-hand with trafficking.

Supply chain problem

Simran Bharaj, a financial crime change and transformation specialist at GKSB Consulting in London, said firms are not making the connection to financial crime systems and controls because they tend to consider human trafficking and modern-day slavery as a social or supply chain problem.

“Firms are not viewing it as a predicate offence to money laundering. They just see it as an ethical problem that they must deal with; theyʼre not seeing how it also aligns to economic crime more broadly,” Bharaj told Compliance Corylated.

Data dilemma

Low awareness of human trafficking typologies also stems from a lack of consultation with smaller charities that have gathered data and developed resources to understand criminal patterns.

Financial crime teams, regulators and charities such as Stop the Traffik should be brought together to create a public-private partnership to share information, update financial crime guidance, and calibrate anti-money laundering (AML) controls to include human trafficking and modern-day slavery, and understand how it aligns with economic crime, Bharaj said.

While the components were there, there was “not the right level of data capture at present”, she said, which made screening and transaction monitoring “impossible”.

“A lot of the tech providers have said that when they built out rules [for their platforms] to look at modern day slavery issues that would generate an alert, clients donʼt want to buy it because they donʼt have the data and itʼs too expensive,” she added.

The UK Financial Conduct Authority’s (FCA) Financial Crime Guide makes no mention of people smuggling, human trafficking, and modern-day slavery, which could be another reason that financial crime teams have not addressed these crimes in risk assessments, Bharaj said.

The FCA declined to comment. However, banks are subject to the FCA’s Handbook requirement to have appropriate systems and controls to counter the risk that they are misused for the purposes of financial crime of all types. They also must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (MLR).

Hawaladar warning

People smuggling is a political issue as well as a humanitarian one, which has prompted ministers to announce the forthcoming sanctions regime, and the National Crime Agency (NCA) to target social media companies that enable traffickers to advertise their services online.

Hawala is an informal method of transferring money, often internationally — via brokers known as hawaladars — without any physical money actually moving. Last month, the NCA, in conjunction with HM Revenue & Customs and the Home Office, issued a warning to registered hawaladars about money laundering linked to people smuggling.

This makes sense because hawaladars can handle the kind of large cash transactions likely to be favoured by traffickers, said Dev Odedra, director at Minerva Stratagem Consulting. “The authorities are following the money: first looking at the legal ways to move money, because the illegal ways will be harder to find. This is a warning to the registered hawaladars, saying ‘hey, be careful because there are illegal hawaladars as well. You could inadvertently facilitate this crime without realising itʼ,” he added.

Remote onboarding risks

Aside from crossborder payments, once trafficked people enter the UK, other financial crime risks emerge. Bank branch staff are in a position to recognise modern-day slavery victims, which is why it is critical that staff are given training, said Odedra.

He reported people coming into a branch with their handlers, and staff seeing they were confused or under duress. “In those cases, it was the vigilance of the staff who said: ‘Hold on, this doesnʼt seem right. Why is this person keep coming in multiple times with different people [and] opening bank accounts for different individuals?’” he explained.

However, increasing branch closures mean most accounts are opened remotely, making it easier for people traffickers to open accounts on victimsʼ behalf and launder money or appropriate their earnings. They might also use Post Office counters to deposit cash, where branch staff may be less aware about money laundering risks or human trafficking typologies, Odedra warned.

Raising awareness

Organisations raising awareness of the subject include the Association of Certified Anti-Money Laundering Specialists (ACAMS), which often hosts educational seminars on human trafficking. Meanwhile, the Institute of Money Laundering Prevention Officers (IMLPO) will cover the topic at its conference in June.

The FCA did not comment on whether it had plans to raise awareness about money laundering and sanctions risk linked to people smuggling. The FCA says it works closely with government and law enforcements partners on all aspects of financial crime. Modern slavery and human trafficking trafficking are recognised in the FCA’s vulnerability guidance as life events that can make a consumer more susceptible to harm.