Dirty money and human trafficking – How anti-money laundering helps identify and prevent forced labour and sexual exploitation

While money laundering is a crime, it is often seen as one that harms only the financial institutions it targets. But this could not be further from the truth.

Money laundering is deeply intertwined with some of the most heinous organised crime in the world – one of the most serious being human trafficking.

Human trafficking – forced labour, sexual exploitation and other forms of abuse - is a $150 billion global industry, run by organised crime groups that operate in every country in the world.

However, while the profits for traffickers are lucrative, getting their hands on the illicit cash is a challenge – and that is where money laundering comes in; these criminal networks exploit legitimate businesses to "clean" their dirty money.

Money launderers use complex schemes and multiple layers to obscure the origins of their money by funnelling them into legitimate businesses – such as banks, legal firms and accountants – as well as into property and other investment vehicles.

By integrating their illegal funds into the legal economy, criminals are able to disguise the proceeds of their crimes, make their profits appear legitimate and hide their illicit activities from the authorities.

That is why understanding the relationship between money laundering and human trafficking is absolutely imperative, and highlights why all regulated businesses - regardless of their size - must take their anti-money laundering (AML) obligations seriously.

Money laundering affects businesses of all sizes

In the UK, there are still a huge number of firms that should be registering for AML and running comprehensive checks on their customers but are failing to do so.

For example, this year, HMRC fined 254 estate agents a total of £1.6million for failing to register/re-register for AML, while according to a treasury report, 18% of accountancy firms were found to be non-complaint with AML regulations.

This lack of compliance is often because smaller businesses often think that they will not be targeted by financial criminals, and that it is only large corporations and financial institutions that need to worry about detecting and preventing money laundering.

But that is not true – businesses of any size can be targeted, and those with the lowest defences are often the most targeted. Even businesses that do not class themselves as ‘regulated’ i.e. they do not have direct exposure to financial markets or customer cash – can become victims of money laundering schemes.

Why should businesses care about AML?

1. Legally, they’re required to

If money laundering regulations apply to your business type, you are legally required to register for money laundering supervision and put a comprehensive AML process in place. The regulations apply to a range of different business sectors and businesses need to register with the relevant authority, depending on their business type; the main ones are:

• Financial Conduct Authority (FCA) – financial services firms including banks, building societies credit unions, payments services providers and investment firms.

• HM Revenue and Customs (HMRC) – estate agents, letting agents, high value dealers, and money services businesses (not regulated by the FCA).

• Solicitors Regulation Authority (SRA) – solicitors and law firms.

• Institute of Chartered Accountants in England and Wales (ICAEW) – chartered accountants and accountancy firms.

• Gambling Commission – gambling businesses e.g. casinos, online betting.

2. Reputationally, they need to

If your business is used as a front for laundering operations – even unknowingly – the damage is not just financial, it is reputational. And that can be hard – or even impossible – to salvage. Businesses associated with financial crime suffer from severe reputational harm, leading to lost customers and partnerships – data suggests that more than half of UK consumers would switch banks if theirs was involved in a money laundering scandal.

3. Morally, they have to

Businesses that fail to meet their AML regulations are not just putting their own business at risk – financially and reputationally – but, as outlined earlier in this blog, are enabling criminal networks to thrive. By putting comprehensive AML procedures in place, businesses are able to identify and disrupt the flow of dirty money, making it harder for human traffickers to continue to exploit vulnerable individuals. Taking AML seriously is a moral duty, and is a huge part of the fight against organised crime.

How can businesses fight money laundering – and help combat human trafficking

Every business, regardless of its size, needs to put proper AML procedures in place, and this should include:  

• Identification and verification - this should include individuals, businesses and the ultimate beneficial owners (UBOs) of any business client.

• Screening for sanctions and PEPs – all customers must be screened against global PEP and sanctions lists to identify any potential risk.

• Enhanced due diligence – where any matches with sanctions or PEPs are identified this needs to be investigated further.

• Source of funds checks- all customer funds need to be verified to ensure the source is legitimate.

• Ongoing monitoring – once the customer is onboarded, they will need to be regularly checked for any changes or anything suspicious.

Running these checks is vital in the fight against money laundering, and ultimately, the fight against human trafficking. To find out how SmartSearch can help your business put AML procedure in place to identify and prevent money laundering and the serious crime it helps support, visit www.samrtsearch.com