How Money Laundering Use for Modern Slavery

Slavery is a problem that has been going on for centuries. Although its devastating effects have come to an end, it persists. Although no nation in the world continues this inhumane practice since 2020, people still continue this practice under the title of modern slavery.


Modern slavery is often prevalent in low-income and conflict-ridden regions. However, the number of modern slaves in developed countries is also alarmingly high. Modern slavery is used to describe the conditions in which people cannot resist the situation in which they are abused and leave their current position due to threats, violence, coercion, cheating, abuse of power.


Today, modern slavery is quite common in many areas, especially in sectors such as garment, mining, agriculture, and fisheries. Fisheries in Thailand, coal mining in North Korea, cocoa production in the Ivory Coast, cattle pastures in Brazil, as well as modern slavery can be found in some diplomats' homes in Australia and the car wash industry in the UK.


A Global Problem: Modern Slavery

The International Labor Organization (ILO) report pegged the profits accrued by modern slavery in the US $ 150 billion in economic sectors. That 2014 survey was based on 21 million victims caught in financial actions (2012 ILO figures) and did not add the millions of women and girls trapped in social forms of slavery, i.e., forced marriages.


According to the Global Slavery Index 2018 report, there are more than 40 million "modern slaves" worldwide. Seventy-one percent of modern slavery victims are women and girls, and 29 percent are men. Of the modern slaves, 15.4 million were forced to marry, and 24.9 million were forced to work.


Five out of every thousand people in the world are victims of modern slavery. The regions where modern slavery is intense differ in different categories such as "forced labor" and "forced marriage." From 2017 estimates, it still makes modern slavery the third most profitable illegal activity in the world, behind counterfeit assets at $ 1.3 trillion and drug trafficking at $ 600 billion.


Regions such as the Asia-Pacific contain 60% of modern slavery. In countries such as Afghanistan and North Korea, there are significant proportions of slaves exploited by most states. Many of these people are forced into forced labor and sex work in the West.



The Importance of Money Laundering and Financial Vigilance

Profits from modern slavery, of course, are illegal. For this reason, it needs acquittal. Like every other financial crime, modern slavery is based on cash, further increasing the smugglers' interest in various money laundering tactics.


Identifying human trafficking and slavery networks is extremely challenging. Victims are often too scared to reveal. Those who refuse to contact the authorities because of social taboos, cultural attitudes towards the police, or the status of illegal aliens.


For the reasons we explained above, it is very troublesome to detect and prevent slavery. Therefore, AML prevention is also increasing in importance. Frequently, tracking the money trail is the most effective way to identify assets related to slavery and forced labor. And since billions of dollars are involved, most of it in cash, laundering activities can and do raise significant red flags.



Modern Slavery for Banks and Financial Institutions

There are some publications published by FATF to prevent human trafficking. In these publications, he describes the various forms of human trafficking and its prevalent areas. However, he published several studies analyzing the effects on AML interventions. Numerous cases worldwide have been studied, and some commonalities in the financial activities of criminals have been identified. For example;

  • Extensive use of cash.
  • Prefer small businesses that do car washes or take-away services.
  • Large number of small money transfers to victims' homelands.
  • Victims use more than one account and card.


Of course, we don't mean that many of the criminals are showing similar movements. Behaviors can also vary from region to region. For example, in the European area, criminals often preferred small kebab restaurants, billiard halls, shell companies, and real estate investments. In the USA and Canada, primarily casinos, car dealers, import-export companies are preferred.


Many of these red flags apply to other criminal enterprises like drug trafficking as well. But human trafficking has some specific red flags, many of which are focused on the victims and how the traffickers handle them.


Financial institutions often have a key role to play here as they can see these red flags at their best. Better monitoring will lead to more actionable Suspect Transaction Reports (STRs) from other fronts to law enforcement, who often lack knowledge of modern slavery.  


Most of the red flags typical of modern slavery are non-financial in nature. And some models are not easy to describe. This is where modern fintech solutions like big data analytics and artificial intelligence come into play.


When specifically programmed for AML and compliance, fed with the right parameters and red flags, AI can identify forced labor and sex trafficking patterns much more effectively than human analysts and researchers.


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