Modern Slavery Typologies

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Modern Slavery is one of the fastest-growing international crimes in the world today, however, our ability as practitioners to identify human exploitation is extremely difficult.

This presents several challenges for both compliance and financial crime practitioners, as Modern Slavery is an ML predicate crime and a potential source of terrorist financing. Therefore, many of us will have an obligation to report suspicious activity to our respective financial intelligence units if we identify types of human exploitation activities associated with modern slavery.

It is important to note that non-banks and non-financial firms may also have an obligation to report to another law enforcement agency in their respective jurisdiction. For example, in Australia, financial institutions report to their FIU (Austrac) but non-banks should report to the AFP.

The legal process to combat modern slavery is to detect, investigate, and prosecute offenders. As practitioners, our role in the process is to detect and perform a light investigation in order to establish whether a suspect has been formed so we can submit a suspicious activity or matter report to our FIU.

In order to do this effectively, we must have a robust framework and monitoring tools to identify and detect possible forms of modern slavery. A carefully designed risk assessment should be the foundation of this framework by identifying high-risk factors such as country risk, customer and supplier risk, and product and industry risks. An effective risk assessment will allow practitioners to apply a risk-based approach and channel resources accordingly.

For example, according to the 2018 global slavery index, the top 3 products at risk of Modern Slavery include electronics, garments and fish and some high-risk countries associated with these products are China, Malaysia, and Thailand.  Therefore, financial institutions could focus their attention on corporate customers involved in importing these products from these countries. Clearly, it is much more complicated than just this and domestic risks must also be considered, however a risk assessment taking some of these factors into consideration could assist in building a targeted approach to identifying the flow of money and potential proceeds of crime from modern slavery.

Through understanding the typical profile of businesses that are high risk, the financial institution can adjust its risk appetite to avoid funding or support illicit activity.

Unfortunately, legitimate financial institutions are unknowingly used to launder funds generated from modern slavery. It is important, therefore, that those working in financial institutions at all levels understand how to identify money laundering red flags.

Practitioners must understand the trends and typologies that are present in modern slavery.  This will enhance their ability to assess and mitigate risk within their customer base and identify red flags for better monitoring and reporting of suspicious activity. In addition, a certain transactional activity carried out by individuals or businesses may indicate illegal activity. Financial institutions have a wealth of transactional and personal data at their disposal, but it is important for those assessing this data to understand the patterns that could indicate modern slavery activity.

For example, some typologies that assist with the identification of possible links to modern slavery include forced prostitution, labor trafficking, or forced labor. Financial institutions collect and record customer residential addresses and a potential red flag to look out for would be many individuals residing at the same address. Transactional data is also very valuable and assists with the identification of an unusual flow of money. For example, detection scenarios could be designed in the transaction monitoring system to identify small repeated amounts paid to high-risk jurisdictions to an unrelated beneficiary as this may suggest possible child exploitation. Structured cash deposits at multiple bank branches may also indicate human trafficking.

The Mekong Club has published an online document called “Modern Day Typologies for Financial Service Providers” which provides valuable insights into common traits of modern slavery cases. We highly recommend that you review this document as it can be used as a reference point when considering the risk posed by clients at the onboarding and account review stages.