Guest Author - Consuelo Herrera, CAMS, CFE
Human trafficking generates illicit profits and illicit wealth. Money laundering is the process through which dirty money becomes clean. Forensic accountants play an important role helping uncover illicit funds from human trafficking, by using special investigative techniques.
The money laundering is developed in three stages:
During the placement stage, dirty money from different sources such as drug trafficking, human trafficking and smuggling, firearms trafficking, corruption, fraud, etc., is broken down into small amounts and introduced into the financial system. Financial institutions are bank, insurance companies, car dealers, casinos, and other businesses as described by the Bank Secrecy Act.
The layering stage takes place when the audit trail becomes hard to follow. Since the money is already in a financial institution, the goal in this stage is to separate illicit sources of money from their owners. Money is transferred from account 314 to account 422.Travelers checks are purchased with funds in account 314 and so forth. It involves a web of transactions that makes it difficult to trace them down. Illicit funds are commingled with legal funds.
In the integration stage illicit funds had reached the appearance of clean money. This money goes back to the market in the form of investment in real estate, artwork, and many goods and services.
Since human trafficking is such a lucrative market worldwide that money is incorporated into the financial system or laundered through friends and relatives such in a case that is being currently investigated.
This is the story of a man who allegedly ran a human trafficking and prostitution ring for nearly two decades. This perpetrator went from city to city making hundreds of thousands of money that he laundered through friends and relatives. As per police reports, that man kept scores of women locked in "stables" where they were induced to use heroin and cocaine and beaten if they did not meet their $500 to $1,000 daily prostitution quota. How many women? I do not know but let’s just look at the money laundered if these facts are proven. Again, let’s take the low end, $500 a day, 360 days during 20 years. It means that the proceed from a single victim during that length of time would have been, $3,600,000. Do the math by taking into consideration the actual number of victims.
Those engaged in human trafficking and modern slavery have many sources of income as they provide goods and services for their victims with the purpose of keeping them in endless debt bondage. Perpetrators gain an added value that flatters their covetousness: Lots of money!
Translate into a monetary scenario the case below although they apparently cannot be portrayed as victims, they disclosed their monthly earnings, which by inference can be applied to the proceeds earned by victims on behalf of their perpetrators:
A press report stated:
“Some of the victims involved in this case continued to work in the brothels voluntarily even after their debts were paid back in full. A woman referred to as WS, for instance, stated that she accepted the debt as the cost for the opportunity to come to Australia to earn money. During her contract period she was required to earn between $12,000 and $13,000 per month. At this rate she paid off her debt in three months. Afterwards she worked at a rate of $8,000 and then $2,000 per month. This money was sent back to her family in Thailand. Another woman, PN, reportedly also stayed on after paying off her debt over three months, working seven days a week earning about $15,000–$17,000 per month. WP, a third woman, also stayed on after paying off her debt in two months and twenty days, earning around $15,000 per month.8 It was argued that all of the women involved were aware of the circumstances involved in the contract, and that they suffered no harm, mental or physical, from their time in Australia.”
$15,000 x 12 months =$180,000
$17,000 x 12 months = $204,000
Since prostitution is a crime, these proceeds were illegal, making them subject to money laundering regulations.
Much remains to be done. Three Ps: Protection, Prosecution, and Prevention are key in prosecuting money laundering and human trafficking. This is a great approach. The most powerful P of them is Prevention. My slogan as it refers to fraud but holds true to every crime is that Prevention is better than detection and or investigation. Prevention means education through awareness programs involving the community as a whole and an outreach campaign to educate vulnerable targets of greedy criminals such as the ones described in these article.