Human Trafficking and AML: 2019 Could Be a Turning Point for Asian Banks

Banks will need to adapt existing AML programmes to include new monitoring scenarios and train staff to recognise human trafficking red flags, says Nick Turner at Clifford Chance.

Recent developments highlight the growing importance of AML (anti-money laundering) compliance in the fight against human trafficking and other forms of modern slavery. Banks throughout Asia will be asked to do more in the coming year to detect and report transactions related to suspected trafficking.

Leading the Charge

As reported by Regulation Asia in August, FATF (the Financial Action Task Force) released a major typology report to guide governments and AML regulators in identifying money laundering and terrorist financing related to human trafficking.

The report followed years of advocacy by NGOs (non-governmental organisations) such as Liberty Shared (formerly Liberty Asia), Mekong Club, and others, urging authorities to do more to implement an international framework in line with the United Nations Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children and related instruments. In particular, NGOs like Liberty Shared have been asking regulators to require banks to report proceeds of trafficking to assist prosecutors in seizing assets which can be used to compensate victims.

FATF’s report also came amid a growing awareness of the prevalence of human trafficking in major economic sectors, such as fishing, electronics manufacturing, and construction. The UK Modern Slavery Act 2015 and Australian Modern Slavery Act 2018, which took effect on 1 January 2019, among other laws, require companies to take steps to identify and stamp out trafficking in their supply chains. Similar laws have been adopted or are under consideration in California, France, and the Netherlands, to name a few.

In Hong Kong, proposed legislation to improve the SAR’s anti-human trafficking laws received widespread attention in 2018, a topic which could figure into its upcoming FATF mutual evaluation report, due in 2019.

Sanctions Developments

Global authorities are also increasingly using economic sanctions to target traffickers and deny them access to their assets and financial services. In June 2018, the United Nations Security Council imposed sanctions on six individuals accused of human trafficking in Libya. In the United States, OFAC (the Office of Foreign Assets Control) has sanctioned individuals accused of human trafficking at least three times since December 2017 under the Transnational Criminal Organization programme.

The adoption of human rights-focused sanctions under the Global Magnitsky Act in the United States, and similar laws in Canada and the United Kingdom, provides another tool for targeting individual human traffickers through asset freezes and travel bans. A similar initiative is under consideration in the European Union.

The introduction of trafficking-related sanctions will further sharpen banks’ focus on the issue because failing to identify sanctioned customers or transactions can lead to hefty fines. Moreover, when a bank identifies a customer or transaction associated with a sanctioned person, it often uncovers connected accounts and counterparties involved in facilitating their activities. Suspicious transaction reports on related parties can serve as an important source of information for law enforcement in unravelling trafficking networks.

Working Together

With FATF’s report adding to the growing chorus for action, human trafficking is set to become a hot topic for the coming year. Regulators throughout Asia are likely to start incorporating FATF’s messages into their guidance and examinations.

The good news: when it comes to AML compliance, one size (almost) fits all. The generic principles of customer due diligence, transaction monitoring, and suspicious transaction reporting can be, and should be, applied to all forms of predicate offenses. Over time, the focus of AML has expanded to encompass drug trafficking, terrorist financing, corruption, tax evasion, and other critical issues. The recent emphasis on human trafficking is part of that continuing evolution.

The challenge for banks will be adapting their existing programmes to include new monitoring scenarios and training front-line and back-office staff to recognise trafficking red flags. Thankfully, they will have the benefit of expertise from FATF, NGOs, and other groups working to combat human trafficking in Asia and globally—not to mention the growing number of AML specialists in the region.

Nick Turner is a Registered Foreign Lawyer at Clifford Chance Hong Kong where he specialises in economic sanctions and anti-money laundering. He is a Certified Anti-Money Laundering Specialist (ACAMS) and publishes a weekly “Sanctions Top-5” summary of news and commentary, available on LinkedIn or by email. The views expressed here are his own and do not represent legal advice.

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