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Human Trafficking: What Should Financial Institutions Know?

Archana Kotecha is a UK-qualified barrister and London School of Economics graduate. After practicing corporate law for seven years with KPMG and DLA Piper, Archana joined the UN Refugee Agency’s Legal Protection Team, then the Immigration Advisory Service and Stop Trafficking UK in London. She has served on the UK Human Trafficking Centre’s Victim Care Committee and the NSPCC’s anti-trafficking hotline committee.

Since joining Liberty Shared, Archana has produced multiple best practices and reports, involved in policy and advocacy and educated human rights practitioners, financial institutions and governments on trafficking in persons including legal and anti-money laundering frameworks. She also works with the private sector to highlight human rights risks and improve due diligence processes.

Archana currently serves as the Asia Region Director and Head of Legal. Recently named one of the top ten innovative lawyers in Asia- Pacific by the Financial Times, she is also an alumni of the US Department of State’s prestigious International Visitor Leadership Program.

Fintelekt: At the outset, could you give us a quick overview about Liberty Shared and the work you are doing as an organisation?

Archana: Liberty Shared is an anti-trafficking, anti-exploitation, non-governmental organisation which is Hong Kong and US registered. We were set about 8 years ago and the idea was really to try and work on a couple of things, the first being improving the quality of data relating to exploitation and we do that working with NGOs with more sophisticated technology and data bases in order to gather more comprehensive and holistic data sets. The second thing was to help data be actionable for people making important decision to make more informed decisions about what is going on at the frontiers of crime. Access to justice was also something we are very concerned about, particularly in relation to access to remedy for victims of exploitation, and fundamentally all our programs are very collaborative. Our NGOs thrive on collaborative relationships with a range of partners across government, private sector as well as other NGOs globally. Currently I’m based in Asia and we cover a lot of South East Asia but it would be fair to say that Liberty Shared activities are global, as human trafficking is a global problem.

Could you give us an idea of the extent of human trafficking problems both globally and regionally, and highlight major trends that you have seen evolving over the years?

From an extent perspective, the latest statistics put the problem of slavery at affecting 40.5 million people globally, of which 24.9 million people are living and working in conditions of forced labour; these could be people who are either being forced into either domestic work, or who work in factories, agricultural, mining etc. Over 65% of global victims are based in the Asia Pacific region. Another interesting statistic is that the G20 countries collectively import US$ 354 billion worth of products that are being produced by modern day slavery and the whole business volume of slavery today is estimated at US$ 150 billion a year. It is one of the fastest growing forms of crime globally and it has been in the spotlight today more than ever before. There are several reasons for this – it is high on the agenda of many political leaders today and many businesses are now understanding and realising that their supply chain may not be completely free of exploitation. There are some significant trends in certain sectors like agriculture, hospitality, constructions, mining and extraction of raw materials, electronics etc. I think of one of the significant industries at risk is the recruitment agency because in every migrant’s journey, a recruitment agency plays a very significant role. We often find in cases of exploitation that issues start to appear at the recruitment level, whether it is a formal recruitment by an agency or informal recruitment at the village or community level. Another significant trend is that the attention has somehow not shifted away but has started to focus on not just the final perpetrator of the act of trafficking itself but rather on who is investing money in these businesses and where is the money from these businesses going – in essence the people aiding, abetting and allowing this business to flourish. This is one reason why the financial institutions have come into the spotlight because there is now tremendous focus on who is investing in all these sectors when they know these are sectors that are rife with exploitation. Questions are being asked as to why are they not demanding better conditions for people, why are they investing in human rights violation. If the money from human trafficking is indeed proceeds of crime and if the products of human trafficking are proceeds of crime then why aren’t our financial institutions being held accountable? There are also linkages between human trafficking and terrorism financing with context to sanctions violation and this has been an area of interest for banks, and they are now  acknowledging that this is a serious legal, financial and reputation risk issue rather than just a human rights violation. I think that needle has really taken a lot of time to shift on this point and I think one of the reasons this has happened is because globally we are seeing the advent of regulations that are aimed at improving transparency in supply chain companies. Now companies of a certain size across many jurisdictions in the world are being required to submit reports that are signed by their board of directors over what efforts they are taking to combat exploitation in the supply chain. So as the environment gets more regulated it is very likely that the issue will get the recognition it deserves.

Are there any current typologies of patterns that you’re noticing?

Typologies can be very specific to a sector, industry or geography, but generally speaking with the fishing or agricultural produce industry, one of the difficulties we face is the mingling of goods from various sources and it becomes very hard to determine what came from where. There is some discussion at the moment of blockchain technology being used to identify the source and the journey of various products and that is likely to make the identification easier. But essentially because of the multiple layers in the supply chain, the outsourcing arrangements that exist that are not always clear and the fact that in many supply chain there are many small businesses that do not have the resources and are potentially not as well-regulated as the larger corporations is where incidents of exploitation typically take place.  In the large corporate businesses, the ‘cutting corners’ that takes place at supply level is actually generated by draconian purchasing practices and negotiation by buyers which forces supplies to keep the price is very low that many times is the cause of poor practices.

But equally there could be a very different typology, for example with bride trafficking. There have been very large incidents of bride trafficking towards China as a result of the gender gap in China. Unscrupulous people prey on vulnerable women from neighbouring countries and charge a fee to take them to China to be ‘happily married’ but the outcome is very different. There are many Industries that are benefiting from this – the marriage bureaux, travel agencies, and in some cases the advertising industry. We know that a lot of the funds generated by this are in the form of cash. And we also know that there is a great deal of investment of these funds in luxury items, real estate, casino business or the catering and hospitality industry. So, the co-mingling of legitimate and illegitimate complex corporate structures in order to muddle-up liability and the chain of liability are becoming very apparent in typologies across both sex trafficking and labour trafficking cases.

What would you say are some of the factors inhibiting law enforcement agencies from making a more significant difference in curving this menace?

Corruption is a major problem. Also, human trafficking is often cross-border in nature. It is a network-based activity. Unfortunately, much of the criminal justice approach has been very focused on the perpetrator and this means that the person at the end of the food chain is taken out. This person is possibly very easily replaceable in the network so we find that the activities of law enforcement are often not directed at bringing the entire network down. It is quite unusual to hear of an entire network being down and it highlights significant issues with the criminal justice approach because it relies very heavily on the testimony of victims. It is critical to be corroborating the accounts of victims using the financial angle. Questions need to be asked, such as – how was this business taken, what do the money flows tell us, what does the flow of goods tell us, how can we use this to corroborate what we have. So, a financial investigation must accompany a criminal investigation and we are not seeing this very often just yet.

The other thing is that there is a tendency to focus on a person and in many cases there are corporates that are driving a lot of these issues. There are very few cases where corporates are held accountable and have their assets seized for being involved in this kind of activity. In Europe and in the US, we are now starting to see company directors being held accountable and that potentially a trend that could catch on in Asia but it is not yet happening.

From the financial law enforcement perspective, there is much more that can be done in improving the quality of reporting of suspicious activity and the way Financial Intelligence Units (FIU) deal with these issues. I believe it would be fair to say that many FIUs across the region are under-staffed and under-resourced and depending on the quality of the suspicious activity report and the volume of activity as well it may be very hard to see a financial investigation through on time. But it is a really important part of the investigation that suspicious activity report on human trafficking are taken up by the FIUs and  investigated appropriately. Of course, one of the most significant challenges around producing better quality of suspicious activity report is that people filling out these reports need to be very informed about what it is that they’re looking at. Also, we currently do not have a box of magic indicators that would help us say that this is definitely a trafficking case. The indicators that point to trafficking are actually very generic and could really point to a whole host of other issues so we continue to work on this front with partners in the financial industry and NGO sectors to find how the quality of STR can be improved, what type of data is required for that, and what type of predictive analytics would help in order to identify and report proceeds from human trafficking.

What are the imperatives today for the financial compliance community in the fight against human trafficking?

It goes without saying that having business models that thrive on the exploitation of the most vulnerable in society are entirely unacceptable. We are talking today not just about a gross violation of human rights but also a very serious legal, financial and reputational risk issue. This should figure high in any risk dashboard of a financial institution particularly the banking sector. The proceeds of exploitation are most certainly proceeds of crime produced by exploiting people. The Financial Action Task Force (FATF) produced a 40 page typology document last year in July and highlighted that this is an issue of grave concern. Fines have already been imposed on financial institutions (for e.g. Western Union) in connection with non-detection of proceeds of human trafficking, and there will, no doubt, be more fines coming out in that direction. I think it is really important for systems to be reviewed, for staff to be trained, and for KYC procedures to be tightened for issues that relate to human exploitation particularly in geographies and sectors that are high risk. Eradication of modern slavery has becomes a sustainable development goal and also given that many banks globally are actually required to file statements under the modern slavery act it is becoming clear that it is very important for banks to be looking at this as a serious issue and considering proactive ways in which this can be addressed.