The Financial Crimes Enforcement Network (FinCEN) issued on January 13, 2023 an alert (the “Alert”) to financial institutions regarding the detection of financial activity related to human smuggling along the U.S. southwest border (“SW border”). The Alert builds upon FinCEN’s prior 2020 and 2014 human smuggling and human trafficking advisories in order to provide trends and typologies specifically related to human smuggling along the SW border. It also provides red flag indicators regarding transactions potentially related to human smuggling.
The Alert effectively lays out the breadth of the problem. Effectively detecting and reporting human smuggling and trafficking, however, can be difficult, given the extensive use of cash.
Scope of Human Smuggling and Trafficking
The Alert makes the point that illicit actors seeking profit by smuggling migrants have exploited the fact that the volume of migrant activity on the SW border has increased sharply: in FY2021, there were 1.7 million “encounters” involving the U.S. Customs and Border Protection, which FinCEN defines as an enforcement action (including the apprehensions or expulsions of aliens), and over 2.3 million such encounters in FY2022. According to the Alert, a variety of factors is driving this increase in activity, including oppressive and corrupt regimes in countries such as Venezuela, Cuba, and Nicaragua. Further, migrants often enlist the assistance of smugglers because of the harsh terrains and travel conditions presented by crossing the SW border, as well as the dual threats of law enforcement and violence posed by drug cartels. The Alert cites an estimate that “human smuggling along the SW border generates an estimated $2 billion to $6 billion in yearly revenue for these illicit actors.”
All of this revenue, of course, leads to money laundering and illicit financial transactions. As the Alert observes, FinCEN has listed human smuggling and trafficking as one of the national priorities for anti-money laundering and countering the financing of terrorism (AML/CFT). Further, and as we have blogged (see here and here), the Government Accountability Office recently has addressed the nexus of human trafficking and money laundering.
The Alert provides that smuggling operations along the SW border are typically conducted by networks of smaller groups and organizations that perform different functions. Further, these networks often are associated in some way with transnational criminal organizations (“TCOs”), such as drug cartels. “These associations range from the smuggling networks paying a portion of their illicit gains as a ‘protection tax’ to a TCO for safe passage to more direct involvement by the TCO in the day-to-day operations of the smuggling networks.”
The Alert also posits that human smuggling involves two main phases: solicitation and transportation–with solicitation now often occurring through social media and other technology. Social media platforms—particularly those that offer end-to-end encrypted communication—also play a role during the transportation phase, because smugglers use them to coordinate along the route and recruit third parties, such as unaffiliated truck drivers. Smuggling networks insulate themselves “to a degree” by using third parties because they often lack knowledge of the network’s operations or chain-of-command.
The Alert states that human smuggling networks still use the same money laundering methodologies as previously reported by FinCEN in earlier advisories. “Because human smuggling is often tied to larger criminal organizations, these often overlap with money laundering methods used by TCOs.” Those methodologies are:
- Cash Placement and Layering into the Formal Financial System: Because cash is still the primary method migrants use to pay smugglers, smuggling networks often engage in bulk cash smuggling. Networks sometimes engage in cash purchases of high-value assets, including real estate and businesses. In some cases, smugglers avoid depositing their cash proceeds into a financial institution and instead use them to finance living expenses, to purchase luxury items, or to support drug or gambling habits.
- Funnel Accounts: Smuggling fees, often paid by the family members of migrants already settled in the United States and disguised as remittances, are sent to funnel accounts at financial institutions with branches or locations along both sides of the SW border.
- Alternative Payment Methods, including the use of mobile payment applications and other forms of peer-to-peer (P2P) networks to transfer funds.
The Alert identifies the following red flags regarding potential suspicious transactions associated with human smuggling. Some of these red flags are more useful than others; for example, although the activity described in the red flag may suggest some form of criminal activity, the specific presence of human trafficking or smuggling may not be clear. Many of the red flags, not surprisingly, involve the use of cash.
- Transactions involving multiple wire transfers, cash deposits, or P2P payments from multiple originators from different geographic locations either across (1) the United States, or (2) Mexico and Central America, to one beneficiary located on or around the SW border, with no apparent business purpose.
- Deposits made by multiple individuals in multiple locations into a single account, not affiliated with the account holder’s area of residence or work, with no apparent business purpose.
- Currency deposits into U.S. accounts without explanation, followed by rapid wire transfers to countries with high migrant flows (e.g., Mexico, Central America), in a manner that is inconsistent with expected customer activity.
- Frequent exchange of small-denomination for larger-denomination bills by a customer who is not in a cash-intensive industry.
- Multiple customers sending wire transfers to the same beneficiary (who is not a relative, and may be located in the sender’s home country), inconsistent with the customer’s usual business activity and reported occupation.
- A customer making significantly greater deposits—including cash deposits—than those of peers in similar professions or lines of business.
- A customer making cash deposits that are inconsistent with the customer’s line of business.
- Extensive use of cash to purchase assets, such as real estate, and to conduct transactions.
Finally, FinCEN requests that SAR filings reference the Alert by including “FIN-2023- HUMANSMUGGLING” in SAR field 2 (“Filing Institution Note to FinCEN”) and selecting human smuggling (SAR Field 38(g)).
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