Bank’s Duty to Report Human Smuggling and Human Trafficking Financial Activity

September 30, 2014 | dehs

By Keith A. Gauer  South Dakota’s United States Attorney Brendan Johnson has made it a priority in his office to investigate and prosecute cases involving human smuggling and human trafficking in South Dakota. Under federal law, “human smuggling” is defined as an act or attempt to bring an unauthorized alien into the United States. The crime of “human trafficking” involves the act of recruiting, harboring, transporting, providing or obtaining a person for forced labor or commercial sex acts through the use of force, fraud, or coercion. In South Dakota, the United States Attorney’s focus has been primarily on the crimes involving human trafficking, which often involve the recruitment and harboring of women for prostitution.

According to Johnson, the predominantly male audiences drawn by South Dakota’s annual Sturgis Motorcycle Rally and pheasant hunting season, provide easy target for human traffickers. While U.S. Attorney Johnson’s efforts have focused on cooperation with local law enforcement, advocacy groups, health care professionals, and religious leaders, there would also appear to be a role for banks to play in identifying and reporting potential human smuggling and human trafficking activity.

The Financial Crimes Enforcement Network (“FinCEN”) released a new Advisory on September 11, 2014 (FIN-2014-A008) providing specific guidance to banks, both large and small, regarding their role in identifying and reporting financial transactions relating to human smuggling and human trafficking activity. Specifically, the Advisory provides a list of “red flags” for banks to look for in identifying potential activity and additional guidance regarding the reporting of possible cases of human smuggling or human trafficking through Specific Activity Reports (SARs).

While the guidance specifically notes that no single transactional red flag provides a definitive indication of human smuggling or human trafficking activity, financial institutions are directed to consider multiple factors regarding a customer’s financial transactions in order to determine whether or not a SAR should be prepared to report on the activity. The Advisory specifically notes that banks should consider financial activity at a “relationship level” rather than at the “account level” in order to properly monitor and report this type of suspicious activity. Additionally, the Advisory notes the importance of training bank floor personnel to identify signs of potential human smuggling or trafficking in their personal interactions with customers.

While a complete listing of the red flags would be beyond the scope of this bulletin, the following list notes some of the red flags that may be relevant to human smuggling activity monitored by South Dakota banks:

  • The use of multiple transfers between a customer and a common beneficiary located in a U.S. or Mexican city along the southwest border of the United States.
  • Unusual currency deposits into a bank account followed by wire transfers to countries with high migrant populations (including Mexico, Guatemala, El Salvador, and Honduras).
  • Multiple, apparently unrelated, customers sending wire transfers to the same beneficiary located along the U.S. or Mexico border.
  • Use of a customer’s account as a funnel account for activity.

With respect to human trafficking, the Advisory notes the following potential red flags:

  • A business customer that fails to demonstrate normal payroll expenditures (including wages, payroll taxes, Social Security contributions, etc.) where the bank knows that the customer has employees and a workforce.
  • A business deducting large amounts from the wages of its employees alleging extensive charges (such as housing and food costs) where the employees receive only a fraction of their actual wages.
  • Cashing of payroll checks where the majority of the funds are kept by the employer.
  • Use of the business account as a funnel account for activity.
  • Transactions conducted by individuals escorted by a third party, often under the pretext of requiring an interpreter.

The Advisory also provides specific guidance with respect to the completion of a Specific Activity Reports (SAR) relating to human smuggling or human trafficking. The Advisory indicates that the phrase “ADVISORY HUMAN SMUGGLING” or “ADVISORY HUMAN TRAFFICKING” should be included in the narrative section of the SAR. Additionally, the Advisory notes that the victim of the human smuggling or human trafficking should not be identified as the subject of the investigation. Rather, the victim should be identified within the narrative section. If you should have any questions in connection with your bank’s monitoring or reporting of suspicious activity relating to human trafficking or human smuggling, please contact our office for assistance.

Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.