Anti-Money Laundering and Know Your Customer departments at financial institutions are on the front lines of human trafficking. Not only does enhanced transaction monitoring help law enforcement identify trafficking circumstances through generation of Suspicious Activity Reports but it helps avoid high risk lending relationships and cuts the power source of businesses or people who facilitate trafficking.
Recently, there has been an emergence of legal action related to organizational responsibility for human trafficking. In November, the Australian Transaction Reports and Analysis Centre (Australia’s financial intelligence, anti-money laundering and counter-terrorism regulator) initiated a civil penalty order against Westpac Banking Corporation for failing to identify transactional patterns indicative of sex tourism or child sex trafficking in the Philippines. The Federal Trafficking Victims Protection Act and various state human trafficking laws provide for a civil remedy for victims against those who financially benefit from a venture that they “should have known” involved human trafficking.
In the U.S., a recent civil action brought by a sex trafficking survivor against several hotel chains provides an example of the types of actions that companies may begin to see as efforts to prevent human trafficking extend to the corporate sector. The action, which alleges that the hotels failed to identify and prevent sex-trafficking victimization, survived a motion to dismiss in an Ohio federal court in October. The case may forecast a path forward for additional lawsuits and it provides notice to institutions that working to prevent human trafficking can help reduce the potential for liability.
Financial institutions and their customers could face similar actions if they do not establish meaningful human trafficking detection and prevention programs. Under the Bank Secrecy Act and related regulations, financial institutions operating in the United States are required to have the necessary controls in place and generate reports to assist law enforcement in detecting money laundering and other criminal acts. FinCEN has specifically identified human trafficking as an activity covered by the Bank Secrecy Act and its implementing regulations. Other laws and regulations address the prevention of labor exploitation, and by extension, human trafficking, including the Federal Acquisition Regulation, the California Transparency in Supply Chains Act, and the United Kingdom Modern Slavery Act. These laws mandate that certain companies take measures to avoid and respond to labor abuses in the supply chain. Lastly, federal, state and local laws are an established source of criminal liability.
As intended by the Bank Secrecy Act, financial institutions are uniquely positioned to help combat criminal activities such as trafficking, thereby supporting its victims. Without due attention to appropriate controls to identify and prevent misuse of financial institutions by human traffickers, organizations risk criminal, civil or enforcement actions as well as potential reputational damage.
We routinely advise clients on regulatory compliance matters and have extensive experience in human trafficking prevention and victim support. We are available to assist in developing strategies, programs and processes to identify and avoid human trafficking and labor exploitation risk.
About MVA White Collar Defense, Investigations, and Regulatory Advice Blog
As government authorities around the world create a constantly evolving regulatory environment, conduct overlapping investigations, and bring parallel proceedings, companies are facing perhaps the most challenging regulatory and criminal enforcement environment. Moore & Van Allen has created this blog to help keep our clients up to date in these fast-moving areas and to serve as a thought leader as regulations and enforcement policy continue to develop. Our blog is a combined effort of Moore & Van Allen’s White Collar Defense and Investigations Team and our Financial Regulatory Advice and Response Team.
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