When thinking of crimes in the financial sector few have slavery in mind. Julie Guetta and Silvija Krupena from RedCompass Labs show us the influence that financial industry players can have on this ageless problem
Since the beginning of the pandemic, financial crime, and particularly modern slavery, human trafficking (MSHT) and online child sexual exploitation (CSE), has been thriving. While the financial industry cannot act on its own, institutions in this arena can have a significant impact if they overcome some current challenges like fragmentation or ineffective incentive models. In this article, we will explore how widespread MSHT and CSE are and how financial institutions can act to implement changes that disrupt illicit money flows from buying and selling people or exploiting children.
How big is the MHST industry?
Every four seconds, somewhere in the world, someone becomes a victim of modern slavery and human trafficking (MHST). MHST is one of the most widespread financial crimes, estimated to be worth USD 150 billion annually, exploiting over 40 million people. Unfortunately, the pandemic has only increased the problem. Traffickers and predators have benefitted from the disruption and have further diversified their illicit activities. For example, over the past couple of years, online child sexual exploitation (CSE), one type of MSHT, has become a global industry, exploiting, and abusing children and generating USD 20 billion a year.
Does more legislation mean an end of MSHT and CSE?
While, of course, legislation is critical to stop the spread of the problem, the financial sector also has a key role to play in the fight against this global crime. In fact, not only do banks provide access to the payment rails used to transfer the underlying illicit money, but they also have at their disposal a huge amount of data, which, if analysed, could help foresee these crimes.
However, criminal techniques are becoming increasingly more sophisticated, and banks’ ability to spot and stop these crimes on their own is declining. As a result, banks today are processing millions of illegal transactions hidden in plain view. The recent fines paid by banks just prove that. For example, Australian bank Westpac was fined a record USD 0.9 billion for AML breaches that enabled online child sexual exploitation in the Philippines.
Despite the recent avalanche of new or amended legislation addressing MSHT (for example, The Anti-Money Laundering Act in the United States, the Sixth Anti-Money Laundering Directive in the EU or The Modern Slavery Act in the UK and Australia, etc.), there are more slaves today than at any other time in history. To date, less than 1% of criminal proceeds flowing through our banks are detected, with only 0.8% of traffickers prosecuted and a minuscule 0.2% of victims rescued in a year.
What are the current issues preventing meaningful changes?
These numbers show that the current model is suffering from significant flaws and need a profound re-factoring. The top key challenges include insufficient resources, pace, and complexity of change both in regulations and in the traffickers’ modus operandi, and a highly fragmented approach within banks and across the industry. Furthermore, the matters previously listed are exacerbated by an ineffective incentive model that works as a catalyst for a ‘box ticking’ compliance culture, preventing bank executives from tackling the actual crimes and helping victims. Just as an example, earlier this year, the United Kingdom Independent Anti-Slavery Commissioner, Dame Sara Thornton, reported that over 30% of banking professionals in the UK did not believe that MSHT was happening in the United Kingdom, nor that they had a role in combatting MSHT.
How can banks disrupt MSHT and CSE?
Some banks are already taking action following the recent increase of the regulatory scope in this space. However, to make a significant impact, a complete re-design of the operating model needs to be implemented. Here are a few intrinsic design principles that should be considered when defining a game-changing approach:
Considerably increase collaboration as this problem can’t be solved in siloes. Traffickers have no borders, so participating in private-public partnerships, like the Traffik Analysis Hub or Project Shadow and exchanging intelligence, lessons learnt, and latest trends is vital to help everyone be better informed and equipped.
Use existing resources readily available in the market (often open-source or complimentary on request) like the UN/FAST Blueprint, OSCE Following the Money Compendium, RedFlag Accelerator Typologies and others to accelerate change implementation.
Leverage technology to increase efficiency and reveal previously hidden patterns. In particular, harness the innovation that has emerged during the past decade, such as advanced data analytics and data science, artificial intelligence, machine learning, and cloud-based solutions from the likes of RedCompass Labs, Consilient and other vendors, to drive the detection of persona-defined indicators that show MSHT and CSE in action across the money flows.
Implement a holistic MSHT and CSE approach across the bank and within the whole industry. This should be defined after seeking advice from the industry’s MSHT and CSE experts and professionals and must be aligned from top to bottom across all bank’s business processes (compliance, operations, front-line, training, technology, security, legal, ESG, procurement, asset management, etc.).
Select the proper controls and tools that fit the bank’s business model, products, and customers. To combine excellent human expertise and technology, it is crucial to select a solution that could easily integrate within the bank’s environment and meet the bank’s unmet requirements.
Combined, these changes can have a powerful impact. The financial sector can lead by example and disrupt MSHT and CSE, addressing one of the biggest injustices of our time. As the pandemic continues to rage around the globe, these crimes will continue to evolve, and the problem will only get bigger. Now is the time to act, cooperate and leverage existing intelligence, data, and technology. But most importantly, it’s time to move away from reactive and defensive responses to a more proactive approach!
More information about the RedFlag Accelerator: https://www.redcompasslabs.com/redflagaccelerator
Banks can request to access to the RedFlag Acceelerator Typologies for free here: https://redflagaccelerator.com/signup/
About Julie Guetta
A finalist to the Women in Payments Rising Star Awards EMEA 2021, Julie is a payments enthusiast with over 10 years of experience in financial services, particularly in implementing strategic payments platforms. In her role as Head of Payments Strategy at RedCompass Labs, she helps clients understand the trends of the future and to create new business opportunities.
About Silvija Krupena
With over 18 years of experience, Silvija is RedCompass Labs Financial Crime expert. Her long track record in Payments, Open Banking, Financial Crime Regulations, Compliance Frameworks and Transaction Monitoring enabled her to lead the development of RedCompass Labs RedFlag Accelerator, the largest single source of MSHT and CSE Typologies for financial services.
About RedCompass Labs
RedCompass Labs helps financial institutions deliver profitable, secure, end-to-end payment and financial crime services and solutions. Using advanced AI, data analytics and the long-standing experience of its consultants, the team provides delivery-focused consulting, managed services, and world-class workshops on a vast array of subjects, including the Future of Payments and ISO 20022.
RedCompass Labs are committed to disrupt modern slavery, human trafficking, and child sexual exploitation and to this end they have developed the award-winning RedFlag Accelerator, the global standard of MSHT and CSE red flags for the financial industry. Today, RedCompass Labs supports its clients from its five offices in London, Warsaw, Antwerp, Singapore, and Tokyo.
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