Anti-trafficking and illicit trade are complex and difficult challenges and ones which have massive human, social and environmental costs, generating tens of billions of pounds of illicit funds.
PwC and LexisNexis® Risk Solutions joined forces in March for the latest in the series of financial services sector seminars, bringing together industry practitioners and experts to share insights and solutions. The panel in this latest webinar was made up by a very esteemed group of experts as they explored the shady and disturbing world of trafficking:
- Rob Campbell – programme manager for United for Wildlife, a not-for-profit organisation led by The Duke of Cambridge, working to protect endangered species.
- Neil Giles – Director at Stop the Traffik, which works to promote awareness of human trafficking, how to identify it, and what to do about it.
- Simon Buckett – is Director in Standard Chartered’s Integrated Intelligence and Investigations team.
- Steve Elliot – is UK & Ireland Business Services Managing Director at LexisNexis Risk Solutions.
Anti-trafficking is a huge task. Forty million victims of human trafficking worldwide are being exploited to generate something like $150bn – and this is likely to be a huge understatement. Neil Giles from Stop the Traffik believes the actual figure to be some five times larger. And only 1% of these crimes currently result in prosecution.
Wildlife trafficking is estimated to be a $20bn global industry. According to WWF’s 2018 living planet report, sixty percent of the world’s wildlife has been lost in the last fifty years. There is a real risk of entire species being wiped out: within 10 years, it’s likely we will no longer see elephants and rhinos in the wild. And let us not forget that the current coronavirus outbreak is thought to have originated from wildlife trafficking: pangolins sold illegally in a wet market in China. The full impact of COVID-19 is yet to be seen, but apart from the devastating human cost, it’s also expected to cost the global economy in excess of $2.7trn.
So what are businesses doing today to help prevent trafficking?
Of the 200+ respondents from financial institutions who responded to our live webinar survey, one third say their organisation has carried out an anti-trafficking risk assessment. One fifth of respondents have not. Almost half are not sure whether they have or not. Maybe this is because, in general, financial institutions perceive their exposure to trafficking risk as relatively low, or else they admit to not being sure.
The majority of financial institutions are looking to their Know Your Customer (KYC) and Customer Due Diligence (CDD) processes to manage their anti-trafficking and risk exposure. Significant numbers are using transaction monitoring. Half of respondents are participating in intelligence forums and proactive gatherings designed to confront the risk.
Simon Buckett, from the Integrated Intelligence and Investigations team at Standard Chartered, has been investigating trafficking risk for 2-3 years now and is still learning. Whilst he recognises that banks cannot put an end to the physical trafficking of people or wildlife, nevertheless they do have the power to stop the money flows – the lifeblood of this errant economy. Traffickers do what they do for money. Standard Chartered is investing time and resource in developing a better understanding of the types of funds, transaction patterns and flows of money associated with trafficking, but the difficulty for individual banks is that they can only see their own data.
Collaboration and information sharing is key
It’s clear that collaboration and information sharing is key. Ultimately banks only see transactions, so Standard Chartered’s approach to anti-trafficking has been to forge partnerships with other financial institutions, as part of JMLIT, as well as with Not-For-Profits (NFPs), non-governmental organisations (NGOs) and with law enforcement, to provide training, education and awareness to the bank’s front office in particular. In doing so they help their staff to better understand what trafficking money flows and patterns of behaviour look like, and to help them spot this upfront. Working together is hugely important; when information is shared more broadly, transaction patterns and trends become more obvious and the anti-trafficking problem can be confronted as a network, rather than in silos.
Knowledge transfer is also key. United for Wildlife tries to act as an incubator to bring NFPs and law enforcement together with financial institutions, so that frontline staff in banks can better understand typical criminal profiles and routes. This is particularly important as traffickers are very adept at presenting themselves well, so as not to arouse suspicion. In fact, on the face of it, they may well appear to be the best customer a retail branch could wish for. It’s only when staff understand the context that the lights start to go on and they begin to see the clues. Law enforcement also has a key role to play in advising on the crucial information required to raise a suspicious activity report.
The focus of the regulatory policy makers, such as the FATF, is rightly shifting towards outcomes and effectiveness, as well as financial crime compliance. Should the 6th EU money laundering directive, due to be adopted by the EU later this year, be implemented in the UK, it will further impress on business the need to truly understand the underlying predicate offences of money laundering, of which trafficking crimes represent a significant proportion. Any enhanced regulation of this kind should act as a good catalyst for sharing information and for immersing front office staff in intelligence around what they should be looking for.
So what are the anti-trafficking red flags that indicate trafficking activity?
Neil Giles, of Stop the Traffik, talks of perennial recruiting zones, where human traffickers groom and prepare their victims for a journey. These recruitment zones are also, regularly, the zones where the repatriation of funds will likely be headed for, as traffickers generally prefer to send money home rather than keep them in the areas of exploitation. As part of their anti-trafficking approach, Stop the Traffik gathers intelligence to identify these recruiting zones and their characteristics, as well as the exploitation zones. This work helps inform financial institutions about the sort of money flows, sources and destinations to look out for.
When it comes to anti-wildlife trafficking, Rob Campbell talks of the need for stronger KYC/CDD processes in other industries, such as Maritime, so that there are better ways to analyse bookings of shipments. This would have a significant impact on anti-trafficking and would improve the chances of identifying trafficking far earlier in the process.
Steve Elliot, of LexisNexis Risk Solutions, also points to the need for those creating compliance controls to understand how global trade operates. For example, in the logistics industry, how containers move, how they’re packed and the controls in place around inspection, so as to avoid the content of containers being manipulated, documentation counterfeited and containers passing unchecked.
However, there is only so far businesses can go with identifying red flags and typologies, and the level of detection remains incredibly low. What’s needed is a step change. A lot of the current activity in relation to anti-trafficking is prompted by reactive intelligence – by individuals sharing information on what’s going on and developing a better understanding of the underlying crimes and criminal networks. The challenge is for us to move to more proactive solutions and be on the front foot in the fight against trafficking.
How to achieve a step change in levels of detection?
For Steve Elliot, the answer lies in data and analytics. The data and technology to achieve this already exists.
Effective KYC and CDD processes can no longer rely on simple data attributes such as name and address, to truly understand who they’re doing business with. What is required is a far higher volume of more sophisticated data attributes that can provide better insight on the individuals and transactions involved in the complex, inter-connected and evolving trafficking ecosystem, as well as the ability to run strong analysis against these attributes. In this way, financial institutions can hope to gain a clearer picture on risks that they may not previously have seen.
These large datasets then need to be combined with careful monitoring and reverse engineering using outcome data, taking confirmed trafficking crimes and transaction flows and understanding how they occurred, what were the patterns of activity and flows of money, and what can be learnt from this. This type of outcome-based approach to solving problems can be seen across a wide range of different sectors, including manufacturing and medicine.
Anti-trafficking key challenges and next steps
There is still some way to go as only a third of financial institutions are currently using data and analytics to solve financial crime. Artificial intelligence and machine learning are still in very early stages of adoption as it relates to financial crime compliance.
Whilst the more established banks agree that data and analytics has to be the right way forward for anti-trafficking, many face issues with their own data, for example struggling with legacy systems that don’t talk to each other properly. Challenger banks and fintechs have a major advantage here, as data companies that do banking, rather than banks that work with data. However, the disadvantage for them is that being the ‘new kids on the block’ may also make them more of a target for financial crime, as they might be perceived as having less control than the more traditional players. There is a real opportunity here for the more traditional banks to work with the fintechs, the challengers, and with data providers, to use their combined power to tackle the trafficking risk more effectively.
For Rob Campbell, more needs to be done on the regulatory front as regulatory limitations currently restrict the sharing of actionable intelligence with banks around known traffickers who have not yet been charged. United for Wildlife has lists of traffickers and companies, but unless they have been prosecuted, it’s currently not possible for them to share this information directly with the banks. The way to deal with this is to engage with law enforcement early on, which has led to key successes, with significant trafficking rings being broken up and leaders arrested. Rob feels that the two way exchange of information more directly between NGOs and banks could make a huge difference to anti-trafficking.
In summary, knowledge and education remain vital ingredients in the fight against all forms of trafficking crime. Effective collaboration and information sharing are also essential, across public and private sectors, as well as to other sectors beyond Financial Services. But the real step change will be achieved when banks’ know your customer and due diligence processes embrace the significantly larger and more sophisticated data-sets available to them and apply advanced analytics to be able to recognise the hallmark patterns, behaviours and transaction flows, associated with trafficking, more effectively. And this needs to happen fast.