Financial institutions need to take heed of specific red flags that are indicative of human smuggling and trafficking, warned the Financial Crimes Enforcement Network (“FinCEN”) in an advisory issued on September 11, 2014, and report suspicious activity to FinCEN.1 “Financial institutions, large and small, can play a critical role in identifying and reporting transactions related to these unlawful activities based on their observations when interacting with customers and their monitoring processes,” said FinCEN.
In order to better identify potential smuggling or trafficking activity,2 FinCEN directs financial institutions to “consider reviewing transactions at the relationship level rather than at the account level.” Doing so will allow financial institutions to analyze a customer’s transactions across multiple accounts rather than reviewing transactions in just one account. According to the FinCEN guidance, this will help financial institutions gain a more comprehensive perspective on the customer’s behavior and activity, and therefore be able to better monitor for suspicious activity. Moreover, in comments directed to the compliance responsibilities of personnel within bank branches, FinCEN also recommends that branch or floor personnel who interact with customers in the course of daily transactions be on the lookout for suspicious activity and alert financial institutions accordingly.
FinCEN’s guidance includes two appendices that are replete with examples of red flags for branch or floor personnel, and for financial institutions more generally, to “consider incorporating into their monitoring programs.” Among the red flags FinCEN identifies as indicative of human smuggling are: unusual currency deposits into U.S. financial institutions followed by wire transfers to countries with high migrant populations; multiple, apparently unrelated, customers sending wire transfers to the same beneficiary, who may be located in a U.S. or Mexican city along the Southwest Border; and frequent exchange of small-denomination bills for larger denomination bills by a customer who is not in a cash-intensive industry. Similarly, FinCEN also identified many red flags indicative of human trafficking, including: a business customer who does not exhibit normal payroll expenditures such as wages, payroll taxes, and social security contributions; a customer with a business who makes substantial deductions from the wages of its employees alleging excessive charges such as housing and food costs, so the employees receive only a small fraction of their wages; transactions conducted by individuals escorted by a third party to transfer funds to other countries; and frequent payments to online escort services for advertising.
FinCEN’s guidance includes reporting instructions for financial institutions that come across suspicious activity. In particular, should a financial institution know, suspect, or have reason to suspect that “a transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage,” and if it “knows of no reasonable explanation for the transaction after examining the available facts,” the financial institution should file a Suspicious Activity Report. Where human smuggling or trafficking is suspected, the phrases “Advisory Human Smuggling” and/or “Advisory Human Trafficking” should be included in the narrative and information sections. The narrative should include an explanation as to why the institution knows, suspects, or has reason to suspect that the activity is suspicious.
While the Advisory and these red flags are informative, the guidance has shortcomings that FinCEN itself recognizes. First, monitoring for human smuggling or trafficking is not in fact as easy as identifying a red flag. FinCEN points out that “no single transactional red flag is a clear indicator of human smuggling or trafficking-related activity.” Thus financial institutions will need to monitor for violations on a holistic level, viewing the totality of evidence against a suspected violator, and consider additional factors such as a customer’s expected financial activity when looking for potential violations. Doing so will require a financial institution to take a harder look the facts and circumstances of a particular customer’s banking patterns to determine if the presence of a red flag is indeed indicative of a violation or merely a false alarm. Second, the red flags identified by FinCEN are not a “one size fits all” solution for monitoring for human smuggling and trafficking, and some of the red flags FinCEN highlights in the new guidance may be unique to specific types of financial institutions. As a result, financial institutions will need to evaluate each of the red flags to determine whether the red flags are either applicable or relevant to their business. Third, this more nuanced look will likely need to be performed by bank personnel who interact directly with customers rather than centrally-located compliance personnel, and disseminating this information to the relevant individuals within financial institutions, e.g. branch or floor personnel, will require extensive and enhanced training. Financial institutions may want to consider hiring experts in the subject area to help train employees and develop compliance protocols to fully explain the relevance and applicability of FinCEN’s red flags and ensure that monitoring is effective and potential violations of the law are identified and investigated.
By issuing this guidance, FinCEN has indicated its intent to monitor for signs of human trafficking and smuggling, and to identify financial institutions which wittingly or unwittingly facilitate traffickers’ and smugglers’ illegal efforts.