The future of AML frameworks – PPPs to the rescue?

Written by Justin Baillie on Monday August 10, 2020

Are current anti money laundering (AML) efforts sufficient to fight the evolving financial crime threat? Are they effective? What improvements can be made to AML frameworks? This is the first in a series of articles in which we will be asking profound questions of current AML practice, and presenting the case for a major rethink of AML regimes.

Project Protect[1] is a ground-breaking public-private partnership (PPP) established in Canada. A collaboration among financial institutions, law enforcement, human trafficking survivors and victims’ advocates, and Canada’s financial intelligence unit (FIU) FINTRAC, Project Protect targets human trafficking for the purposes of sexual exploitation by focusing on the money laundering aspect of the crime.

While it is not the only PPP in Canada,[2] nor the only one of its kind in the world, it nevertheless reflects how a PPP can tackle head-on a very serious issue. The number of people being trafficked around the world is growing. Such is the scale of the threat that in 2013, the UN designated 30 July as the World Day Against Trafficking in Persons.[3]

This year, the occasion was marked by a recognition of the contribution frontline workers and responders play in response to human trafficking. These are often the first to attend to victims under difficult conditions at the best of times, and, due to this year’s coronavirus pandemic, they have had to face various additional obstacles.

Human trafficking: The size of the problem 

Human trafficking is far from new, but its visibility in the media has grown significantly over the last decade. Images of overloaded inflatables sinking in the Mediterranean and refugees fleeing war zones or economic hardship, as well as horror stories of people dying in trucks and many more tragic events, have vividly illustrated that this nefarious activity is all around us.

Action has been taken internationally. The United Nations Convention against Transnational Organized Crime[4] includes two protocols specifically on human trafficking: one to ‘Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children’, the other ‘against the Smuggling of Migrants’.

Furthermore, one of the UN’s 17 Sustainable Development Goals (SDG) is to ‘promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all’ (SDG 8), with, more specifically, a dedication to ‘take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms’ (SDG 8.7). Modern slavery includes forced marriages, and human trafficking includes migrant smuggling. [Our emphasis in bold]

In conjunction with these measures, vital numbers are being collated. According to various sources, including the UN Office on Drugs and Crime (UNODC) and the International Labour Organization (ILO),[5] an estimated 24.9 million people endured forced labour and sexual exploitation at any moment in time in 2016, and proceeds from human trafficking in 2018 reached approximately $150 billion, making it the third largest ‘profit centre’ for organised crime networks globally.

Project Protect: A response to the crisis

The catalyst for Project Protect was a captivating and very personal presentation at an AML conference in Canada in December 2015, made by a human trafficking survivor, and accompanied by an officer of the Royal Canadian Mounted Police (RCMP), both of whom stirred and moved the normally unsentimental AML practitioners present. The rest, as they say, is history.

As mentioned, the project brings together several Canadian financial institutions, law enforcement – police, RCMP, etc. – and FINTRAC, Canada’s FIU.

As soon as the PPP framework was established, participants were able to very quickly come up with a list of human trafficking-specific high-risk indicators (also known as ‘red flags’). Some were so obvious and basic it was a wonder no-one had thought of them before.

Soon, these were incorporated into transaction monitoring rules in financial institutions and other reporting entities. You can guess what happened next: submissions to FINTRAC rocketed.

In 2016, nearly 2,000 Project Protect related Suspicious Transaction Reports (STRs as they are known in Canada; SARs in other countries) were filed with FINTRAC. This represents an increase of no less than 350% from similar reporting in 2015.[6] From inception to December 2019, FINTRAC stated that the project has seen a 750% increase in STRs, which in turn has led to over 500 disclosures of actionable financial intelligence to law enforcement in Canada and abroad.[7]

There is no data on how many of those disclosures led to arrests and convictions, but the ratio of STRs to disclosures is higher than for other categories and speaks to the good quality of submissions.

Another important aspect of the project is how it (almost unwittingly) addresses the oft-repeated Financial Action Task Force (FATF) recommendation for information sharing. While the recommendation conveniently avoids the many restrictions imposed by privacy legislation around the world, there is nevertheless an expectation financial institutions will collaborate with each other, as well as with law enforcement and FIUs. Again, this is where Project Protect excels.

These discussions led to the identification of some very specific typologies which could be easily translated into transaction monitoring rules. Examples include payments to several hotels on the same day (indicative of pimps), high-volume deposits through funnel accounts and immediate withdrawals from border towns (potentially indicative of migrant smuggling), ongoing ATM/credit card transactions in even amounts between 10 PM and 6 AM (payments for sexual services) and payments made to advertise escort services.   

Why Project Protect works - and what we can learn from it 

Until all stakeholders came together on human trafficking as part of the project, all were working in their traditional siloes, and the focus on human trafficking was disparate and scanty.

No single person or financial institution holds all the answers. Nor should compliance be a competitive advantage. By this, I mean no single person or financial institution should hold the keys to fighting financial crime. We are a community of professionals with a common goal – to keep the financial system safe, and we cannot do this alone. To borrow a much-overused phrase from the pandemic, ‘we are all in this together’.

Only by formally uniting and sharing our best practices, understanding the problem from all angles, and implementing common and consistent methods can we stand a chance of making a more positive change in the fight against crimes like human trafficking and the related money laundering through financial institutions. Canada’s Project Protect demonstrates how a PPP can be effective in tackling some of our biggest challenges.

There is much more to say on human trafficking, forced labour, modern slavery and so on.

For now, I will leave some questions for you to ponder and take forward with your stakeholders:

• are PPPs one of the better solutions for more effective AML regimes?
• what are you seeing in your country? Is there appetite for this or do you face obstacles?
• what other areas are prime candidates for PPPs?

Justin Baillie is the principal and founder of Astris Compliance & Risk  Solutions, and the ICA representative in Canada.

Justin has over 25 years' experience in the financial services industry in the Principality of Andorra, England, Scotland, Brazil, Canada, Bermuda, Mexico and Luxembourg; he has spent the last 15 years in Compliance and Risk Management. As such, he has direct, hands-on insight into all aspects of implementing and developing compliance and risk management programmes. Justin advises firms, large and small, on how to implement effective programmes to keep criminals out of businesses and to maintain the integrity of the the financial system. 

[1] FINTRAC, ‘Project PROTECT: Public Service Renewal in Action’: https://www.fintrac-canafe.gc.ca/emplo/psr-eng – accessed August 2020

[2] Three others exist: Project Guardian, to tackle trafficking of fentanyl; Project Chameleon, addressing romance scams; and Project Athena, which relates to money laundering through casinos.

[3] UN, ‘World Day Against Trafficking in Persons 30 July’: https://www.un.org/en/observances/end-human-trafficking-day – accessed August 2020

[4] UNODC, ‘United Nations Convention against Transnational Organized Crime and the Protocols Thereto’: https://www.unodc.org/unodc/en/organized-crime/intro/UNTOC.html#Fulltext – accessed August 2020

[5] As referenced in FATF’s Financial Flows from Human Trafficking, July 2018: https://www.fatf-gafi.org/media/fatf/content/images/Human-Trafficking-2018.pdf – accessed August 2020

[6] FINTRAC, ‘Project PROTECT: Public Service Renewal in Action’

[7] FINTRAC, ‘News Release: FINTRAC publishes indicators of money laundering through casino-related underground banking’, December 2019: https://www.fintrac-canafe.gc.ca/new-neuf/nr/2019-12-10-eng and FINTRAC, ‘2018—19 Annual Report’: https://www.fintrac-canafe.gc.ca/publications/ar/2019/1-eng – both accessed 25 July, 2020