    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                              FOLLOWING THE MONEY:

                             HOW HUMAN TRAFFICKERS

                         EXPLOIT U.S. FINANCIAL MARKETS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON OVERSIGHT
                               AND INVESTIGATIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                JANUARY 30, 2018

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-71

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 _________

                      U.S. GOVERNMENT PUBLISHING OFFICE

     31-327 PDF               WASHINGTON : 2018

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking
        Vice Chairman                        Member
    PETER T. KING, New York              CAROLYN B. MALONEY, New York
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
    STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
    STEVE STIVERS, Ohio                  AL GREEN, Texas
    RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
    DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
    ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
    ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
    ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
    KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
    ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
    BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
    MIA LOVE, Utah                       DENNY HECK, Washington
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
    ALEXANDER X. MOONEY, West Virginia
    THOMAS MacARTHUR, New Jersey
    WARREN DAVIDSON, Ohio
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                         Shannon McGahn, Staff Director
                  Subcommittee on Oversight and Investigations

                        ANN WAGNER, Missouri, Chairwoman

    SCOTT TIPTON, Colorado, Vice         AL GREEN, Texas, Ranking Member
        Chairman                         KEITH ELLISON, Minnesota
    PETER T. KING, New York              EMANUEL CLEAVER, Missouri
    PATRICK T. McHENRY, North Carolina   JOYCE BEATTY, Ohio
    DENNIS A. ROSS, Florida              MICHAEL E. CAPUANO, Massachusetts
    LUKE MESSER, Indiana                 GWEN MOORE, Wisconsin
    LEE M. ZELDIN, New York              JOSH GOTTHEIMER, New Jersey
    DAVID A. TROTT, Michigan             VICENTE GONZALEZ, Texas
    BARRY LOUDERMILK, Georgia            CHARLIE CRIST, Florida
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        January 30, 2018.............................................     1
    Appendix:
        January 30, 2018.............................................    27

                                   WITNESSES
                           Tuesday, January 30, 2018

    Banafa, Bassem, Financial Forensics Consultant, Bassem Banafa,
      LLC............................................................    11
    Frundt, Tina, Founder and Director, Courtney's House.............     9
    Shelley, Louise I., Founder and Director, Terrorism,
      Transnational Crime and Corruption Center, George Mason
      University.....................................................     7
    Vance Jr., Hon. Cyrus R., District Attorney, New York County,
      District Attorney's Office.....................................     6

                                    APPENDIX

    Prepared Statements:
        Banafa, Bassem...............................................    28
        Frundt, Tina.................................................    36
        Shelley, Louise I............................................    39
        Vance Jr., Hon. Cyrus R......................................    46

                  Additional Material Submitted for the Record

    Green, Hon. Al:
        Statement for the record from Christina Bain.................    54
        Statement for the record from Children at Risk...............    55
        Statement for the record from the Mayor of Houston...........    57
        Statement for the record from Project Girls..................    59
        Statement for the record from The Landing....................    60

                              FOLLOWING THE MONEY:

                             HOW HUMAN TRAFFICKERS

                         EXPLOIT U.S. FINANCIAL MARKETS

                                  ----------

                           Tuesday, January 30, 2018

                 U.S. House of Representatives,
                              Subcommittee on Oversight
                                    and Investigations,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:04 p.m., in
    room 2128, Rayburn House Office Building, Hon. Ann Wagner
    [chairwoman of the subcommittee] presiding.
        Present: Representatives Wagner, Tipton, Ross, Zeldin,
    Trott, Loudermilk, Kustoff, Tenney, Hensarling, Green, Cleaver,
    Beatty, Moore, and Gottheimer.
        Also present: Representative Davidson.
        Chairwoman Wagner. The subcommittee on Oversight and
    Investigations will come to order. Today's hearing is entitled
    ``Following the Money: How Human Traffickers Exploit U.S.
    Financial Markets.'' Without objection, the Chair is authorized
    to declare a recess of the subcommittee at any time and without
    objection, all members will have 5 legislative days within
    which to submit extraneous materials to the Chair for inclusion
    in the record.
        Without objection, members of the full committee who are
    not members of the subcommittee may participate in today's
    hearing for the purpose of making an opening statement and
    questioning the witnesses. The Chair now recognizes herself for
    5 minutes for an opening statement.
        One the biggest problems confronting our Government today
    is combating the pure evil of human trafficking, particularly
    trafficking for sexual exploitation. To say that human
    trafficking is a massive problem is to engage in gross
    understatement.
        According to a September 2017 report from the International
    Labor Organization, it is estimated that 40.3 million people
    were victims of human trafficking in 2016 alone. There is a
    reason for this explosive growth.
        Human trafficking is an immensely profitable crime. Profits
    are estimated at $150 billion a year including $99 billion from
    the commercial sex exploitation. Moreover, compared to other
    popular crimes like drug trafficking, human trafficking
    requires very little investment, thus, making it a minimal risk
    and a high reward endeavor.
        As with any large multinational criminal enterprise, the
    life blood of human trafficking is the ability to transfer
    money. If the traffickers are unable to move their ill-gotten
    proceeds or to purchase ads to traffic victims on sites such as
    Backpage or The Erotic Review, their schemes fail.
        Today, Congress has not devoted sufficient attention to the
    vitally important question of how do we ensure that our
    financial markets are not being exploited by these traffickers.
    That changes with this hearing today, which is the opening step
    of the committee's bipartisan investigation into this important
    issue.
        From the testimonies you will hear today, our witnesses
    will make it clear it is time for the U.S. Government and
    Congress to get serious about combating human traffickers'
    exploitation of our financial system. It is important to note
    what this hearing is not about.
        This hearing is not about prescribing solutions. It is
    about gathering information to allow all the relevant
    stakeholders to work together to ensure that this country has a
    comprehensive plan in place to prevent the exploitation of our
    financial systems. I am particularly excited to hear the
    testimony of our distinguished panel of witnesses as they touch
    on new financial products that may be outside the reach of
    regulations or even regulators' traditional surveillance tools.
        For example, we will hear that while money has historically
    been transmitted using remittance services and funnel accounts,
    the use of prepaid cards and cryptocurrencies creates an
    unforeseen challenge for financial regulators. It is not just
    Congress who needs to learn more about these issues. While law
    enforcement agencies are on the frontlines doing excellent work
    in this area, it is a massive undertaking. In enforcement, in
    briefings with committee staff, law enforcement has candidly
    admitted that they need to gather more information about these
    new trends, and in some cases have indicated they may lack
    existing authority to do so.
        It is vital that we learn more about these areas to craft
    solutions to address human trafficking exploitation of our
    financial systems that are not only effective but are also
    appropriately tailored.
        On a personal note, many of my colleagues here know that I
    have worked tirelessly to put an end to online sex trafficking.
    My bill, the Allow States and Victims to Fight Online Sex
    Trafficking Act, would clarify that websites like Backpage that
    advertise sex trafficking can be held accountable under Federal
    and State law. Although Backpage gets the majority of the
    headlines, you will hear today about many, many other sites
    that appear to follow the same business model.
        I look forward to hearing all of your testimony this
    afternoon, and I also look forward to working with my friends
    on the other side of the aisle to thoroughly investigate this
    bipartisan issue. With that, I yield back the balance of my
    time. I would now like to recognize the gentleman from Texas,
    Mr. Green, the Ranking Member, for 5 minutes.
        Mr. Green. Thank you, Madam Chair. I thank the witnesses
    for appearing and I am grateful to this effort that we are
    endeavoring to take up. It is bipartisan and it is an
    opportunity for us to demonstrate that, when it comes to the
    sins associated with sex trafficking, there is very little
    daylight in between us, that we plan to work together for the
    betterment of people who are victims.
        I would like to indicate that sex trafficking is a very
    polite term. It is a term that does not embrace all of what
    happens. It is a term that is used in polite society, but what
    it really means is kidnapping. The literal taking of children
    from their parents. Taking them across State lines, across
    international boundaries.
        It is a term that would in some circles be called sexual
    assault, rape, and that can too often lead to the taking of
    life. Many victims of sex trafficking end up with their lives
    being lost. This hearing is absolutely timely in the sense that
    Dr. King reminds us that the time is always ripe, R-I-P-E, to
    do that which is right.
        We are doing that which is right today. In so doing, I
    think that we should let the persons who are victims know that
    they are not alone, that we have not only the Congress of the
    United States very much interested in what is going on, but
    also I would like to just mention that in my city, the city of
    Houston, the mayor has a letter that I will ask we receive into
    the record by unanimous consent.
        Our mayor is focusing on raising awareness, focusing on
    coordinating services to engage in direct outreach, focusing on
    becoming a national model. Also, we have PG, Project Girls.
    This is an institution, an organization, if you will, that is
    made up of survivors who are actually helping others to
    survive. Another letter for the record.
        Another letter would include the Children at Risk. This is
    a program that started in 2014 and they have the effort on to
    combat sex trafficking by focusing on the demand for commercial
    sex. Finally, I would mention The Landing, another entity that
    will focus on not only eliminating but preventing sex
    trafficking.
        Chairwoman Wagner. Without objection.
        Mr. Green. Thank you, Madam Chair. This sex trafficking is
    metamorphosing in the sense that the means, the methodology by
    which compensation is being received is changing. It is
    changing from what we might consider a traditional means of
    making payment, credit cards or cash.
        Credit cards in the sense that you can buy the prepaid
    cards more appropriately stated. It is moving from these means
    that we have some degree of knowledge as to how we can manage
    and trace to the cyber area into what we--one company is known
    to have the label bitcoin.
        We are looking at the cryptocurrency, and this is much
    harder to trace, much harder to understand how the movements
    are taking place. People have the ability in cryptocurrency of
    transferring money from one to the next without the trail that
    we are customarily looking for. We have to change our strategy.
    We have to metamorphose along with those who are performing
    these dastardly deeds.
        It is important for us as we do this to make sure that we
    include those persons who have been made victims. It is
    important to hear from people who can give us firsthand
    information and a firsthand understanding of how all of this
    transpires. I appreciate all of the professionals who are here
    and I look forward to hearing from all of you, especially one
    person today who is going to be able to share information based
    upon experience.
        Not an experience that is pleasant, not an experience that
    we celebrate, but an experience that can be beneficial to those
    of us who desire to legislate in an effective way so as to not
    only reduce sex trafficking, but to eliminate it. It ought to
    be wiped off the face of the earth. I pledge to work with the
    Chairwoman and all others of goodwill to see that it is done. I
    yield back.
        Chairwoman Wagner. Gentleman yields back. I thank the
    Ranking Member for his opening statement. I would now like to
    recognize the gentlelady from New York, Ms. Tenney, for 1
    minute for an opening statement.
        Ms. Tenney. Thank you, Chairwoman Wagner. Human trafficking
    is a modern day form of slavery that affects millions of people
    around the world each year. The victims of human trafficking
    are forced to engage in commercial sex or labor by traffickers
    who hold them often through threats of violence and other
    hostile means.
        According to UNICEF, there are nearly 21 million human
    trafficking victims worldwide, 55 percent of whom are women and
    girls. It is tragic to know that this atrocious crime against
    humanity is actually happening here in the U.S.
        As a multibillion dollar industry, traffickers will employ
    extreme measures to exploit the most vulnerable in our
    societies for profit. It is important that we study the new
    trends and the methodologies used by human traffickers in the
    financial systems so that we can develop effective methods to
    combat this terrible scourge on humanity.
        As a member of the New York State Assembly, I championed a
    number of issues to provide protections for victims of human
    trafficking. I was an original co-sponsor of the Trafficking
    Victims Protection and Justice Act, a bipartisan measure that
    was put in place while I was a member of the State Assembly.
        I am also glad to sponsor and I am proud to sponsor a
    number of other human trafficking initiatives that are
    currently introduced or will be introduced in the House. I just
    want to thank the Chairwoman for having this very important
    hearing on something that many Americans don't realize is
    happening right here.
        I want to thank the panel for being here today for this
    very important hearing on a really important topic. I just want
    to say thanks for your expertise and for enlightening us on
    this issue, this very important issue that many Americans don't
    realize is happening right here. Thanks so much and I yield
    back.
        Chairwoman Wagner. Gentlelady yields back. Indeed, modern-
    day sex slavery is hiding in plain sight. I now am also pleased
    to recognize the gentlelady from New York once again, Ms.
    Tenney, to introduce today's first witness.
        Ms. Tenney. Thank you, Chairman Wagner. It is my honor
    today to introduce New York District Attorney, the Honorable
    Cyrus Vance, Jr. Though District Attorney Vance has many, I
    would like to highlight many, many achievements, especially I
    would like to highlight today that he has recovered nearly $12
    billion in the course of settlements with nine banks that
    violated U.S. sanctions and expanding the human trafficking
    program into the human trafficking response unit.
        As an attorney and a fellow New Yorker, I appreciate the
    time that you have put into your job to fulfill your duties and
    to serve the great State of New York. We are honored and
    looking forward to your testimony. Thank you so much for being
    here with us today.
        Chairwoman Wagner. I thank Ms. Tenney for her introduction
    of our first witness, who I have had the great pleasure of
    interacting with at the Manhattan District Attorney's Office
    with his fantastic staff that has been instrumental in helping
    us as we move forward in some of the legislation that we are
    pursuing in this committee and beyond.
        I would now like to introduce our next witness, Dr. Louise
    Shelley. Dr. Louise Shelley is the Founder and Director of the
    Terrorism Transnational Crime and Corruption Center at George
    Mason University. Dr. Shelley is a leading expert on the
    relationship among terrorism, organized crime and corruption,
    as well as human trafficking.
        She received her undergraduate degree from Cornell
    University and Masters in Criminology from the University of
    Pennsylvania. The Chair now recognizes the gentleman from
    Texas, the Ranking Member, Mr. Green, to introduce our next
    witness.
        Mr. Green. Thank you, Madam Chair. Madam Chair, I have the
    honor of introducing Ms. Tina Frundt. She is a leading figure
    in the crusade to help children sexually exploited for
    commercial purposes. Ms. Frundt is a survivor of domestic
    trafficking and dedicates her life to helping women and
    children heal from domestic sex trafficking and commercial sex
    exploitation.
        She also trains law enforcement and other nonprofit groups
    to help and provide resources to victims. She is a member of
    the Washington, D.C. Anti-Trafficking Taskforce and the Prince
    George's County Human Trafficking Taskforce.
        In 2010, she was awarded the Frederick Douglas Award. The
    award is given to an individual who has survived slavery and is
    using their life and freedom to help others. In December 2015,
    Tina was named to the United States Advisory Council on Human
    Trafficking by President Barack Obama.
        Chairwoman Wagner. I thank the Ranking Member. It is now my
    pleasure to introduce our final witness, Mr. Bassem Banafa. Mr.
    Bassem Banafa is a forensic accountant who provides consulting
    services and expert witness testimony on civil and criminal
    matters nationwide.
        Of note, Mr. Banafa has assisted attorneys and
    investigators in complex cases involving human trafficking,
    drug trafficking, money laundering, cyber crime, large-scale
    fraud, and organized crime. Mr. Banafa received his BSC in
    Accounting from Santa Clara University.
        Without objection, the witnesses' written statements, will
    be made part of the record and recorded after and following
    their remarks. I welcome all of you. Once the witnesses have
    finished presenting their testimony, each member of the
    subcommittee will have 5 minutes within which to ask questions.
        On your table, there are 3 lights. Green means go, yellow
    means you have 1 minute left, and red means your time is up.
    With that, again, welcome to all of you and I would like to ask
    District Attorney Vance to be recognized for 5 minutes.

                   STATEMENT OF HON. CYRUS VANCE, JR.

        Mr. Vance. Thank you and good afternoon, Representative
    Wagner and Ranking Member Green. I am very honored to be asked
    to speak before the committee. Thank you, Representative
    Tenney, for your kind introduction and for the service that you
    provided as a State legislator and now at the Federal level. I
    am joined today by my colleague and friend, Carolina
    Holderness, who runs our sex trafficking unit at the Manhattan
    DA's Office.
        My written testimony details steps that our office is
    taking to address the increasingly complex world of human
    trafficking as well as the roadblocks that we face in our
    investigations. Some of the key challenges we face are those
    that have already been mentioned in the opening statements.
    They relate to obtaining financial data in an increasingly
    intricate global economy. Now, we are working closely with
    banks and financial institutions and money service providers to
    identify trafficking victims and activity and these
    partnerships have had tremendous impact on our work.
        For example, we have seen traffickers use social media to
    recruit young teenagers from rural areas all over the country.
    To bring these children to Manhattan, the traffickers wire
    money to purchase bus tickets. Money remittance services such
    as Western Union have worked with us to place alerts on sex
    traffickers so that we can trace where the money is being sent
    and intercept it before a child is victimized. Companies like
    Western Union, PayPal, and Venmo have been hugely helpful to
    our investigative efforts.
        However, traffickers are now turning to alternative methods
    of payment that were alluded to earlier, that allow them to
    remain anonymous, such as prepaid gift cards and
    cryptocurrencies. Individuals are using these prepaid gift
    cards to register trafficking websites, obtain cryptocurrency,
    and purchase sex. In one case from my office, someone used a
    Visa Vanilla Gift Card to anonymously register an escort
    website on GoDaddy. We are also seeing cryptocurrencies being
    used by traffickers to purchase advertisements and by sex
    buyers to purchase premium memberships on review board
    websites.
        This trend is driven by the fact that mainstream credit
    card companies are refusing to do business with sites such as
    Backpage. Before the rise of cryptocurrencies, many of these
    sites had been relegated to using other money processors that
    charge steep fees. Now, some members of the cryptocurrency
    community are specifically catering to traffickers who post
    advertisements on Backpage and other sites. Paxful, which is a
    peer-to-peer marketplace where users can exchange gift cards
    for bitcoin, explicitly publishes YouTube videos laying out
    step-by-step instructions for turning these cards into
    cryptocurrencies to pay for Backpage ads.
        I understand that the recent explosion in the use of
    cryptocurrencies is a complicated issue. I really understand
    that and it is a complicated problem that you are going to sort
    through. But I hope that your efforts will continue to be
    forceful, and we look forward as law enforcement to
    collaborating with you in your examination of potential
    legislative and regulatory solutions.
        Obtaining financial data on financial transactions can be
    challenging also because of our country's lax incorporation
    laws, which make it easy for traffickers and other criminals to
    hide behind anonymous shell companies. In many of our
    investigations, we find evidence of illicit activity but we
    don't know who is behind the activity because the criminal is
    using layers of shell companies to hide his or her identity.
        There is a bill currently pending in Congress that
    addresses this issue, the Corporate Transparency Act, which
    would require companies to disclose their true beneficial
    owners so that individuals running human trafficking rings
    cannot hide behind shell companies. On behalf of the Manhattan
    DA's Office and I believe speaking for law enforcement
    generally, we urge the Congress to pass this act.
        Finally, I would like to acknowledge one of the other
    challenges that we have faced in our investigations and that is
    the rise of the use of encryption, particularly on smartphone
    devices. I know this is a politically charged issue, but I
    really want to tell you that since 2014 when Apple and Google
    moved to what is called default device encryption to the extent
    that, for example, Apple can no longer open its devices in
    order to comply with search warrants, this has confronted law
    enforcement with a real challenge. Everyone in this room
    probably uses their cell phone for every purpose in their life
    now. The same goes for criminals. They have moved off paper and
    they are conducting their businesses on the Internet online and
    using their mobile devices.
        The inability, on behalf of law enforcement, to access the
    content of those machines is affecting our ability to bring
    cases in sex trafficking and a whole range of other crimes. I
    know as you look forward to your task, we look forward and
    stand ready to help in any way we can, Chairwoman.
        [The prepared statement of Mr. Vance can be found on page
    46 of the appendix.]
        Chairwoman Wagner. I thank the District Attorney Cy Vance
    for your testimony and we have had lengthy conversations here
    about encryption and it is something that we certainly will be
    looking into in the future. I thank you for your testimony. I
    would now like to ask Dr. Shelley to please be recognized for 5
    minutes to give her testimony. Dr. Shelley.

                       STATEMENT OF LOUISE SHELLEY

        Dr. Shelley. Thank you, Madam Chair, Ranking Member Green,
    and members of the subcommittee for this opportunity to
    testify.
        It is a great honor, I think you have taken on an
    absolutely core means to address human trafficking, because
    human trafficking leaves important financial traces that we are
    not using well enough in our pursuit of this egregious crime.
        Like the other speakers, I have identified the movement of
    human trafficking online into less visible locales, but I think
    it is also important to note that human trafficking is
    increasingly converging with the opioid epidemic. Victims are
    being trapped by opioids and people who are using opioids are
    becoming victims of human trafficking.
        Therefore, as we develop measures to help locate human
    trafficking, we may also be making an enormous impact on the
    opioid epidemic. One of the things that I have found in my
    research that follows what was going on several years ago is
    that we are not doing enough of what I would call creative data
    mining of the financial records of banking institutions.
        I was very fortunate to speak to some bankers who are at
    the absolute forefront of this, who are what I would call
    alumni of JP Morgan's initial program that very cleverly found
    human trafficking in a way that does not harm the victims and
    is not as sensitive to some of the problems that Mr. Vance just
    identified.
        What this requires is a proactive way of mining the
    financial data of banking institutions. That is, combining
    investigative techniques, patterns of human trafficking that
    are constantly changing but can be learned from law enforcement
    and translating them into algorithms that can be then used to
    mine data.
        When this is best done, one can be changing your success in
    finding human trafficking from a 15 percent rate if you are
    just reporting suspicious financial transactions through SARs
    (suspicious activity reports) to as high as an 85 percent rate
    if you are using and combining the best data analytics and the
    patterns gained from social science.
        Key to this is public-private partnerships which are
    already existing and they need expansion just as was laid out
    by the first witness, who explained the absolute need for this.
    But at the moment, we have too much pressure being placed on
    the banking community to do reactive ways of finding human
    trafficking through traces of what might be a suspicious
    transaction, as opposed to the more creative methods of going
    through huge bodies of data and actually finding the needle in
    the haystack.
        This is being done now by some of the most creative bankers
    during the Super Bowl and I can't say too much publicly but it
    is very, very promising in looking for these traces when the
    ads for human trafficking increase, as I put in my testimony, 4
    to 5 times at the time that you have a Super Bowl.
        Nowhere in the banking community did I find the use of
    text-based analysis, which is a very, very profitable tool to
    analyze large amounts of data. If this were combined with the
    type of numerical data analysis that is now being used by some
    of the most proactive banks, we could be making much more
    headway in this area.
        We need to be as flexible and innovative in using new
    techniques of data analysis to address this issue as the human
    traffickers are using in going online. Therefore, I think that
    we need to be focusing on this as legislation 2219 talks about,
    identifying the best practices in the field. This includes data
    analysis, beneficial ownership, related to real estate as I
    talk about in a prominent case from North Carolina, from
    Congressman Pittenger's district, and also ways of implementing
    and encouraging exchanges of best practices.
        There is much that can be done and there are many
    sophisticated people with technological expertise that can help
    us. Therefore, I think we need to be restructuring how we
    praise and reward the banking community for being innovative
    and not tying them down to measures that are not the most
    effective in addressing the problem. Thank you.
        [The prepared statement of Ms. Shelley can be found on page
    39 of the appendix.]
        Chairwoman Wagner. Thank you, Dr. Shelley, for your
    testimony. It is now my pleasure to recognize Ms. Frundt, who
    is here on behalf of our victim's community and is the founder
    of Courtney's House. It has been wonderful to collaborate with
    you over time. You are recognized, Ms. Frundt, for 5 minutes
    for your opening statement.

                        STATEMENT OF TINA FRUNDT

        Ms. Frundt. Thank you. Madam Chair, Ranking Member Green,
    thank you so much for that wonderful introduction, and members
    of the subcommittee, thank you for the opportunity to testify
    before the Subcommittee on Oversight and Investigations.
        My name is Tina Frundt and I am Executive Director and
    Founder of Courtney's House. Courtney's House is based in
    Washington, D.C. and provides direct services to both males and
    females of sex trafficking between the ages of 11 and 21. Our
    current caseload is more like 13 to 19 years old.
        I currently sit on the White House Advisory Council on
    Human Trafficking and serve as Co-chair of the Rule of Law
    Committee, which is responsible for developing a uniform set of
    investigative protocols for all Federal law enforcement
    agencies. I have extensive experience providing expert witness
    testimony in Federal and local trials on human trafficking.
    Since Courtney's House's inception, we have helped over a
    thousand survivors exit their trafficking situation. I have
    previously spoken at many hearings in respect to sex
    trafficking. I am also a survivor of child sex trafficking, so
    my perspective today is going to be a lot different.
        Sex trafficking is something that I not only experienced
    firsthand for over 20 years but also in my daily work as a
    service provider for sex trafficked youth. The population I
    serve can speak directly about what goes on today on the
    financial side of sex trafficking along effects of not just
    emotional and physical trauma but along financial insecurity.
        I really want to focus on that I have a very young
    population, and I say that because of having a very young
    population, trafficking trends change all the time. You have to
    be updated on the changes all the time on the ground. My
    testimony will not only touch on what happened to me but the
    importance of increasing the effectiveness of the financial
    industry.
        Passage of H.R. 2219 to increase the role of the financial
    industry in combating human trafficking will provide an
    important step in the right direction, but we have to make sure
    that we cover everything.
        When I was 13-1/2 I met a man that was 15 years older than
    me. During my trafficking situation, I survived manipulation,
    torture, and mental abuse, but due to time, I will focus my
    remarks today on the longstanding financial insecurity and
    financial abuse I experienced firsthand of my trafficking
    experience.
        Most of my population once again is under the age of 19 and
    were sold on Instagram, Facebook, Snapchat, and Tagged,
    especially our boys who are sold on Tagged.
        There are a few ways survivors are recruited on social
    media; through Facebook Live and Instagram Live, where they are
    actually sold and auctioned on Live. Facebook and Instagram
    Live now are used heavily to sell survivors because you can
    screen, you can allow for your friend and private groups, and
    then you can use some of these methods to boost your population
    and pay to boost it throughout Facebook.
        Additionally pimps and traffickers use this boost to
    feature and promote private groups of pimps and traffickers to
    recruit young girls and to sell them on Live. Survivors who are
    referred to Courtney's House who are minors are sold on social
    media. Traffickers are moving away from Backpage and recruiting
    children and youth on social media.
        Since January 2017, 100 percent of all of our survivors
    were sold on the following mechanisms I said which was
    Facebook, Instagram, Tagged. This is very important and I keep
    saying how old they were. It is important that they were 14 to
    15 because they can't own things in their names yet unless
    someone steals all their information to do so.
        Street, online, hotel, and motels, it is a popular
    misconception that trafficking does not occur on the street. If
    this were true traffickers would miss a population of buyers
    who still prefer to buy sex on the street. I don't think we
    actually think of traffickers as business people because that
    is not even a good business model. You will sell your product
    everywhere because you would maneuver that everywhere to hide
    your money.
        I think that it is hard for people to see and understand
    street-based sex trafficking. Most traffickers do not have one
    person they sell. Like any good business person, pimps, and
    traffickers focus on many avenues to increase their weekly
    profits; children and youth are placed on the street but they
    are also placed at the same time in hotels, motels, strip
    clubs, online, and private homes. Children and youth are forced
    on the street throughout the time.
        Survivors who are 13 and 15 are advertised online. Now you
    may ask me how they are advertised in these open markets. When
    you are a trafficker and you are a U.S. citizen you do hand
    over all of your bank information. Yes, children who may get a
    monthly income every month and it is put on a bank card. When
    you are with a trafficker, you actually have to hand over your
    own banking information as well, your Social Security Card,
    your SSI, your Government benefits, your food stamps, all gets
    handed over to them.
        That brings this back to me, and why this is an important
    issue to survivors. When I was 14, I had property in my name. I
    had cars in my name. Of course I didn't find this out until my
    late 20's when I was homeless and trying to apply for programs
    and transitional housing programs and rental assistance
    programs, which I was not able to get because my credit was
    bad, so I got approved but I can't get assistance because the
    realtors and the renters won't accept me because my credit was
    bad and stolen.
        There were no laws for protecting victims' credit, there
    still really isn't. It took me many years to prove my identity,
    many years to ask about laws that weren't even on the book yet
    to clear anything. It took me 5 to 8 years to clear up
    anything. You had to prove the trafficking situation. I had to
    help write policy to change their perspective.
        I have actually never spoken out about my financial issues
    before today due to my sex trafficking situation. Working
    through your trauma is one thing, but repairing your credit
    fraud and your financial footprint will take a lifetime. It
    follows you throughout your time. It stops you and prevents you
    from moving on.
        Thank you all so much for your time. I would be ready and
    willing to answer any questions.
        [The prepared statement of Ms. Frundt can be found on page
    36 of the appendix.]
        Chairwoman Wagner. Thank you, Ms. Frundt, very much for
    your testimony.
        We have looked at Vacator legislation and laws but I guess
    I have never really taken into account the difficulties with
    credit scores and such too. I appreciate your testimony very,
    very much.
        Mr. Banafa, you are now recognized for 5 minutes.

                       STATEMENT OF BASSEM BANAFA

        Mr. Banafa. Madam Chair, Ranking Member Green, and members
    of this subcommittee thank you for the opportunity to testify
    before the Subcommittee on Oversight and Investigations today.
        My name is Bassem Banafa. I am a Financial Forensics
    consultant at my own firm Bassem Banafa, LLC and for PlainSite,
    an organization that works on legal transparency.
        I was previously a forensic accountant with the Contra
    Costa County District Attorney's Office in California where I
    personally reviewed and analyzed tens of millions of dollars in
    transactions conducted by human trafficking organizations. I
    also worked at Wells Fargo in the Financial Institution
    Investigations Group, which was tasked with investigating other
    financial institutions that may have been compromised by
    criminal organizations that were processing transactions
    through Wells Fargo.
        Prior to that I worked at TM Financial Forensics, LLC,
    another consulting firm where I worked on disputes that
    involved tens of billions of dollars in losses between
    financial institutions that had processed transactions for each
    other and failed to conduct sufficient due diligence to prevent
    those same losses.
        I was asked to provide the Committee with an assessment as
    to how financial institutions monitor, review, and verify
    depository relationships with payment processors. There are
    five ways that a financial institution can engage a payment
    processor. One, engaging a third party to process automated
    clearing house transactions which are bank to bank
    transactions, and bank account to bank account transactions.
    Two, engaging a third party to process payment card
    transactions such as Visa and Mastercard. Three, engaging a
    money services business to process transactions that we are all
    familiar with: Wire transfers or credit card transfers. Four,
    engaging a money services business to process alternative
    payment methods such as cryptocurrency or gift card
    transactions. Five, engaging another financial institution that
    may itself process those transactions for payment processors.
        To support my analysis of financial institutions overseeing
    these payment processors, I looked at four websites and their
    payment methods. These four websites are associated with the
    commercial sex trade and these are the payment methods
    currently available to users wishing to engage with those
    websites.
        One in particular that I will go over is the Erotic Review,
    which allows users to provide extensive, detailed reviews of
    their participation in commercial sex. This includes
    measurements of the victim that they purchased, the ambiance of
    the situation where they engaged in the act, and a detailed
    description of the acts that were purchased.
        This site allows users to purchase access to these reviews
    through U.S. financial institutions. The cryptocurrency
    transactions it accepts are processed through a U.S.-based
    cryptocurrency payment processor. The credit card transactions
    that it accepts are processed through U.S.-based credit card
    processing companies. The beneficial owners of this website are
    largely located in the United States. The customers of this
    website are located in the United States. How is this company
    able--the Erotic Review able to accept transactions this way
    with the current backlash against human trafficking?
        In my written testimony I went over the various methods
    that a financial institution may use to review the activity at
    a payment processor and why this may not have succeeded in
    preventing the Erotic Review from accessing U.S. financial
    markets. In particular there is a problem with the way that we
    engage financial institutions and ask them to prevent money
    laundering.
        The Erotic Review uses a Cyprus-based shell company to
    accept these transactions. Because this company is based in
    Cyprus, through a chain of shell companies that are also based
    in Cyprus, that are in Anguilla, that are in Amsterdam, the
    Erotic Review is able to evade many anti-money laundering
    structures. Because there are limited incentives for financial
    institutions to invest more in detecting this type of evasion,
    the Erotic Review is able to accept these payments.
        I concluded my written testimony by asking members of the
    subcommittee to consider that law enforcement needs to be able
    to pursue these transactions wherever they occur, in the United
    States or abroad. The way to do it is to understand how these
    financial institutions work. As they have grown to accept
    cryptocurrency and other payments their internal structures
    have become increasingly complex and it has become difficult to
    identify what it is that a law enforcement officer needs to
    subpoena or get a search warrant for. That is where I believe
    we need to enhance our knowledge and ability, when pursuing
    that information within financial institutions.
        Thank you.
        [The prepared statement of Mr. Banafa can be found on page
    28 of the appendix.]
        Chairwoman Wagner. Thank you, Mr. Banafa, very much for
    your testimony.
        I will inform members of the committee that votes have been
    called. I am going to attempt to get through my questions here
    first. We will absolutely convene again, if they have called
    them early, I thought they were going to be closer to 3:15 to
    3:30, but I am going to try to get through my questions and we
    will come back immediately following votes and resume the
    hearing.
        With that, District Attorney Vance, I am going to start
    with you. In your testimony you noted that more and more banks
    and credit card companies refuse to do business with those who
    facilitate sex trafficking and as a result have turned to
    prepaid gift cards.
        Can you go into greater detail on how the shift from more,
    what I call, traditional methods such as wire transfers or
    credit cards has changed the playing field for your office and
    how difficult is it to find out where the money is coming from
    and how difficult does it make it to prosecute?
        Mr. Vance. Madam Chair, we had the opportunity to talk
    briefly before the hearing today and I described to you the
    difference between anonymity or my sense of the difference
    between anonymity and privacy.
        All of us obviously have a constitutional right to privacy.
    I think we are all jealously guarding that. I am not sure the
    Constitution has given us the right to be anonymous in defense
    of investigations by law enforcement. To answer your question,
    gift cards that can be purchased with cash and that have no way
    to identify who is the purchaser are then being accepted by
    sites such as Backpage in order to advertise prostitution and
    sex trafficking. I think that is a typical example of how the
    use of technology and anonymity provided by cards makes it very
    difficult for anyone to be able to identify who is actually the
    person who purchased the site, the advertisement on the site.
        Chairwoman Wagner. Thank you, Mr. Banafa.
        I appreciated your testimony about Erotic Review. It's
    abhorrent, absolutely abhorrent. I had the displeasure of
    viewing it for the first time in the Manhattan DA's office and
    some of their reviews. It is the first time I had been exposed
    to this review site.
        But following up on the question to the District Attorney
    we know that major credit card companies won't process payments
    on sites like Backpage, but they will accept these
    cryptocurrencies. In fact they often promote this by moving to
    cryptocurrencies, credit card companies are now just one step
    removed.
        Since I can still use my credit card to purchase a currency
    like bitcoin for instance, how can major payment processors
    like Visa, American Express, and others monitor transactions
    and help ensure their services aren't being used to facilitate
    trafficking?
        Mr. Banafa. Thank you for the question, Madam Chair.
        This issue, a similar issue, came up several years ago with
    payment processing for adult websites in general. Visa and
    Mastercard responded to this issue by requiring direct
    registration of every merchant regardless of the payment
    processor that was being used. I would imagine that requiring
    registration for bitcoin processors and enforcing registration
    at the merchant level for merchants that accept bitcoin through
    processors that are one, two, three levels removed would
    provide the information necessary to ensure that this doesn't
    occur.
        Chairwoman Wagner. Thank you.
        Ms. Frundt, first, it is an honor to have you here today.
    You are a tremendous spokeswoman for victims of trafficking,
    and I am so grateful for our partnership.
        I know you touched on this in your testimony, but can you
    elaborate here briefly on the importance of having financial
    institutions work with victims of trafficking to, as you called
    it, ``fill in the gaps''?
        Ms. Frundt. Yes, one of the things that I think that is a
    gap is not having survivors at the table with financial
    institutions. It changes so rapidly that you need to know on
    the ground what is also happening, but also importantly is,
    when I was trying to clear my credit for years, 5 to 8 years,
    there was nothing on the bank websites to tell me anything on
    how to file this, because it doesn't trickle down to training.
        The person on the 1-800 number answering, you have to go
    through a lot and I stopped for a year because I was
    frustrated. It needs to be accessible to survivors. Even in an
    investigation process, when your case is being investigated,
    ask us more financial issues, like we will give you this, we
    will tell you how it happened but people aren't asking the
    right questions to get the right answers, that is at the 10th
    step instead of at the very beginning.
        Chairwoman Wagner. Thank you very much.
        Dr. Shelley, the same question for you, what does your
    research say about the importance of working with victims to
    stay ahead of the criminal enterprises that are always changing
    their behaviors as we are hearing on adapting, what best
    practices have you identified, ma'am?
        Dr. Shelley. I think that it is important not only to have
    the victims but unfortunately within trafficking organizations
    their bookkeepers and financial participants and they also need
    to be interviewed, because they can help you find the traces
    and the patterns that you are looking for.
        For example, 8 years ago one of the key ways of finding
    human trafficking was charging to nail salons. That is not a
    key element of how you find human trafficking today. There are
    many more elements that are being used in terms of payment
    systems that trafficking victims use for their transport, to be
    not too specific.
        But by sitting down with people who are constantly in the
    process of running a business or being exploited, they know how
    these patterns work. That is what you need because all these
    patterns leave traces of financial data, and they can help
    construct the algorithms that then find the human trafficking
    organizations without putting the victims in jeopardy.
        Chairwoman Wagner. Thank you, Dr. Shelley.
        Sadly, we are going to have to hang on here, and I ask your
    indulgence while we run to vote. We have two votes, folks. We
    will reconvene right afterwards.
        The Subcommittee on Oversight and Investigations now stands
    in recess.
        [Recess.]
        Chairwoman Wagner. The Subcommittee on Oversight and
    Investigations will come to order.
        The Chair now recognizes the gentlelady from Wisconsin, Ms.
    Gwen Moore for 5 minutes.
        Ms. Moore. Thank you, Madam Chair. Let me thank the
    witnesses for coming. I especially want to thank Ms. Frundt for
    coming. I have had an opportunity to hear about her wonderful
    program and the numbers of survivors that she has supported,
    and do appreciate the work.
        I guess I want to start with the financial expert--my
    bifocals don't work as well, so excuse me if I mess your name
    up, Mr. Banafa. I guess I am concerned or I have a question
    about how discerning or discovering these financial crimes is
    being implemented through the President's council and
    engagement with the financial services community and with
    victims and survivors. Can you give us a little bit of the
    elements and the methodology that you guys are using to
    coordinate all those things?
        An earlier example, and I don't want to consume all my
    time, was where you said, nail salons. People weren't getting
    manicures at 2 o'clock in the morning. You were able to figure
    that out. How with the President setting up this technology
    agency, how are you better able to find these algorithms, and a
    little bit more explicit?
        Mr. Banafa. Thank you very much for the question. Many of
    these financial institutions are coming together with social
    service organizations to identify red flags. Although, as Ms.
    Frundt has explained, these are changing constantly; my hope is
    that the result of those collaborations is that we will be able
    to keep up with those changes.
        Some examples of the red flags that we have identified
    include the identification of types of shell companies, such as
    those in high-risk jurisdictions including Cyprus, that many of
    these websites are using. I think three of the four websites I
    identified in my written testimony were using shell companies
    in Cyprus. Credit card companies in the United States are
    allowing the use of Cypriot shell companies to accept these
    transactions.
        Ms. Moore. Ms. Frundt, I guess I would--you have day-to-day
    contact with these young people and thank you again for this
    work. I am so happy that you are on the frontlines of
    identifying this as a human crisis issue rather than just a law
    enforcement issue. How do you develop the trust and so forth to
    get victims to break through the brainwash that they have
    experienced? What do you do? What protocols do you do to try to
    reach out to these folks?
        Ms. Frundt. Thank you very much for that question. I am
    going to walk you through a day-to-day to get a better
    understanding of Courtney's House.
        I did something that was very difficult in the very
    beginning. I grew up in Chicago, Illinois and I grew up in
    foster care, and I grew up in an environment where I didn't
    trust police at all. Actually almost didn't take a job at the
    very beginning with the Polaris Project, because they asked me
    to help start a human trafficking task force. I am saying that
    because I only saw a negative way.
        One of the things I realized in time is that I had to
    partner with the police, U.S. attorneys, and also have them
    come to our fun events, have them be able to come to our drop-
    in center and be a part of it, have them dress down, they love
    that. I promise you.
        We serve food every day. We come and they are not allowed
    to ask them questions, and they can ask them questions. That is
    when they get ready. First we were just a very honest
    organization where they see us and we know what is happening on
    the ground. It is not like I am just a little old lady because
    I am sometimes. It is not like that, it is actually where kids
    are--and these are kids. These are 13- or 14-year-olds.
        I think that people don't understand that if you work
    serving youth, you need to be a youth-led organization, meaning
    that we are on social media for our kids. We have Snapchat. We
    actually face-time our drop-in center and have other survivors
    tell them about the program who are their age. That is really
    important because that is how we do it. Then we have them come
    in.
        Although I work with the missing and absconders unit inside
    of foster care, our kids help find other missing kids, and when
    the police come and we have friends, they are friends with
    them, they actually get to tell them, can I tell them, can you
    call detective so and so and ask them to come, like that never
    happens.
        Ms. Moore. Right, right.
        Ms. Frundt. We are creating a community and that is why
    they open up because we are creating a positive community.
        Ms. Moore. Thank you so much.
        Thank you, Madam Chair, for your indulgence.
        Chairwoman Wagner. My pleasure. The gentlelady yields back.
        The Chair now recognizes the gentleman from Colorado, the
    Vice Chair of the Oversight Investigation Committee my friend,
    Mr. Tipton, for 5 minutes.
        Mr. Tipton. Thank you, Chairwoman. I appreciate you holding
    this very important hearing.
        Something impacting every State and my home State of
    Colorado, 2016 more than a thousand cases of human trafficking
    were reported with our two major interstates that are running
    through our State and the cartel activity unfortunately that we
    are starting to see as well. We are seeing this impact a lot of
    our communities and obviously devastating an awful lot of
    lives.
        We do have in my home area, the West Slope of Colorado,
    have a group called the West Slope Against Trafficking. It is
    an anti-trafficking organization trying to be able to create
    awareness in Mesa County. The head of that organization
    recently said, one of the most important resources that we
    should develop is a community awareness on what it looks like,
    what to do when you encounter it, and the knowledge of the
    crime is the best defense against it.
        Dr. Shelley, expanding that sentiment onto the financial
    services industry, is it difficult for financial institutions
    to use analytical tools to be able to spot the patterns and
    data that may indicate suspicious or illegal behaviors with
    regards to trafficking?
        Dr. Shelley. I don't think it is difficult if you have the
    right skill set on board. I think too many banks have just
    former criminal investigators and you need people with data
    analytics skills. You need people with social science skills,
    people who can help write algorithms. But fortunately today,
    there are many people who would be happy to work with the
    banking community and the bankers, some of them who are
    proactive, are seeking help outside, not only with the law
    enforcement community, but with anybody that can help them.
        That is not the problem. The problem is having enough
    allocated resources within a bank. A bank that needs to deal
    with its SARs is just drowning. The SARs do not allow them
    enough time, with 10 or 20 people, to do the proactive and
    creative thinking that this data mining requires. That is the
    major challenge.
        Mr. Tipton. Expanding on that, it caught my attention in
    your testimony, you brought up the opioid crisis. We just had
    two roundtables in my district this last week, the impact, the
    expansion of that. Are those some of the tells that we might be
    looking for to start to be able to be more proactive?
        Dr. Shelley. Absolutely. In fact, while you were on recess,
    I was doing some wonderful networking here with people who are
    looking at just this issue with the intersection of opioids and
    human trafficking and there are cases that are being developed.
    There is evidence the two overlap and yet we tend to stovepipe
    and look at opioids or we look at human trafficking.
        But often, the human traffickers are less careful than the
    drug traffickers and it can help give us an enormous window
    into the way the opioids traffickers are operating.
        Mr. Tipton. I appreciate that and I think that you speak to
    something very important as has Ms. Frundt in terms of trying
    to be able to be proactive as opposed to being reactive.
        Unfortunately, Ms. Frundt, you had to live this.
        Ms. Frundt. Yes.
        Mr. Tipton. Are there some areas that you could maybe point
    to that when we are looking at--it all revolves ultimately
    around finances as you had indicated. Where are some of the
    areas where you see us in the financial service sector to be
    able to be more proactive as opposed to just being reactive?
        Ms. Frundt. Once again with the training to financial
    institutions, having survivors on the board and helping them
    with the training. But there is a gap, I think, that we are
    missing that we see a lot that is not online and one of them is
    popup shops. We love that concept of popup shops.
        But what we are seeing online is that these tattoo shops
    and barber shops are doing popup shops with stripping and young
    girls there and selling them online on Instagram or Facebook.
    There is a whole development where other business owners are
    actually cutting through that where I am saying, ``I am coming
    to you'' and I am saying, ``Here, if you pay me $500, I get a
    cut of $3,000 off of that, I will let you rent my space off of
    a building that I own.''
        We really have to reach to financial institutions on
    community levels, so they can be aware of this and what is
    happening and they are advertising this online of where the
    locations are throughout the different cities. That connecting
    is important.
        Mr. Tipton. Good. I am about out of time, but I would like
    to ask the District Attorney. Is that something that you are
    looking at in terms of prosecution as well?
        Mr. Vance. Yes, sir. We actually--I think public-private
    collaboration in this area is particularly important and we
    work with the Thomson Reuters Foundation which itself brought a
    group of large banks together in a working group so that we
    could provide to them the typologies of crimes that we are
    seeing so that the banks would understand what records they
    might have that might be relevant to building and proving
    cases.
        We know here how the crime is being committed. Once the
    banks understand what records are involved and what to look
    for, they have the data. I think because of the work of
    committees like this, and it is so important, when people
    understand the scope of the problem and actually understand it
    is out there because we don't have a huge awareness of this
    issue in the United States. Once businesses understand the
    scope of the problem, they want to jump on. They are good
    corporate citizens and they think this is--among the worst
    things that could be happening in America is to tolerate sex
    trafficking or human trafficking.
        Mr. Tipton. Thanks, sir.
        I apologize for asking a question with 8 seconds to go,
    Chairwoman. Thanks for your indulgence.
        Chairwoman Wagner. No. No. No. It is quite all right. We
    want to make sure everybody can be heard.
        The gentleman's time has expired. The Chair now recognizes
    the gentlelady from Ohio, my good friend and a true leader and
    champion in the area of human trafficking and specifically
    partnering with me on online sex trafficking issues, the
    gentlelady from Ohio, Mrs. Joyce Beatty, for 5 minutes.
        Mrs. Beatty. Thank you to Madam Chairwoman and also to our
    Ranking Member.
        First, let me say to the panel, thank you. You have been
    more than our traditional panel because you have lived the
    issue. You are in the field of investment, knowledge, and
    research in it. I want to applaud you for being here and being
    so personal and detailed.
        Certainly, to our Chair and my good friend and colleague,
    thank you for your leadership.
        So often, you as panelists or as guests or America, you do
    not hear us talking about positive relationships and what we do
    together on both sides of the aisle. I can tell you, when it
    comes to whether it is online human trafficking, whether it is
    educating our court system, educating our police department,
    telling people if you see something, say something, I can tell
    you Congresswoman Ann Wagner is at the top of the list of being
    the biggest advocate and she chose not to do it alone. She
    reached over as a Republican and with me being a Democrat, we
    have been in this fight and we will continue to be in that
    fight together.
        I wanted to take that moment of personal privilege to say
    that.
        Chairwoman Wagner. Thank you.
        Mrs. Beatty. But, I have a whole series of questions like
    my colleagues, but I am going to be a little spontaneous here
    because of the dialog. We are hearing a lot about
    cryptocurrency. We are hearing a lot about how it affects our
    credit. If you have been trafficked and oftentimes they are
    using your Social Security number, your name, your life, and
    you get no value out of it other than bad credit when you
    become of age or when you are no longer in that situation.
        Most of you have mentioned that in your testimony, but I
    think what struck me, Tina--I am sorry to call you Tina, but
    that is how I know you. Let me just interject how much I love
    following you. I was with you 2 years ago when you came with
    Congresswoman Wagner and Ted Poe and Caroline and spoke and it
    was so powerful. I followed you around the country.
        But, I am going to take my time to ask all of you to
    respond to something that she said. What we are doing here is
    great. We find out about something and we try to write
    legislation to curb it or to discontinue it. That
    cryptocurrency is the new way, but you say we should be more
    proactive than reactive. What is it each of you would say to us
    because we write the laws and we know it. We have heard you
    testify on it. We know it is a problem.
        We know what is happening. We know that there are places
    like FinCEN that is working on trying to stop this. Tell me
    what we could do to be more proactive, because I think that is
    the answer. It is too late when it is over or you are harmed.
    What should we do?
        Ms. Frundt, do you want to start first?
        Ms. Frundt. There are a few things on fixing the gaps to
    me. I am going to keep saying it. There is a huge gap with
    financial institutions and knowing what is happening on the
    ground. Once again, putting survivors in part of that training
    in connecting will really help, because it changes so much and
    you have to be on the changes that happen continuously, too.
        The other piece to me that is really important is to how
    financial institutions notify. When I was going through this
    issue of--and cleaning my credit, no one answered that number.
    Remember that back of your card number, that 1-800 number that
    you have to call?
        Mrs. Beatty. Yes.
        Ms. Frundt. They do not know anything about trafficking and
    they have no idea and they send you around with all this
    information that you have to prove. There is nothing on
    anyone's website that I could look up that anyone knew anything
    about. It was so frustrating that I did stop.
        You get so mad. You stop for a couple of years. It is hard
    when you talk to lawyers and things weren't introduced yet. It
    makes this so frustrating. These things are not accessible to
    survivors. It is not even explaining anything. That is an easy
    fix to me, of making something accessible and saying that you
    do something.
        Also, if police would tell people more about that, you will
    get way more information, why do kids tell us things and adults
    tell us stuff because I tell them, ``This is to help you clean
    because you cannot get your own apartment. You are not going to
    be able to get anything. What if victim assistance gave you
    money, your landlord will not rent to you.'' You phrase it in
    ways on how it will affect them.
        We will give you all the information in the world. We will
    give it. Just phrase it and start asking us more questions
    about it. And then, also, explain cash apps, Google Wallet,
    like Google needs to be trained, right? These cash apps that we
    use, Square reader. All of these people need to be trained and
    understand, because those are the mechanisms that they are
    using.
        Mrs. Beatty. OK. Thank you.
        Chairwoman Wagner. I am going to allow a little indulgence
    here. Would anybody else like to respond?
        Mrs. Beatty. Thank you.
        Chairwoman Wagner. Dr. Shelley?
        Dr. Shelley. I think the question that you are asking about
    what to do with cryptocurrency is very much related to the bill
    that you referred to that you have been teaming up with
    Representative Wagner, which is the idea that we need to be
    regulating our new innovations in the technological space much
    more, where they have had a free pass while we are regulating
    utilities. We are regulating banks, but in the online space,
    these groups are going--like bitcoin, like other
    cryptocurrencies--without regulation.
        Unfortunately, as we have been discussing over and over
    again, the criminals who are committing all these exploitative
    acts are extremely innovative and adaptive. Without any
    measures to try and control these new payment systems, they are
    at the forefront of its use, and therefore I think you need to
    think about cryptocurrencies the way you are thinking about
    your other piece of legislation on how we deal with online
    marketplaces.
        Mrs. Beatty. Thank you.
        Chairwoman Wagner. District Attorney Vance, do you have
    anything to add?
        Mr. Vance. I couldn't agree more with what the doctor said.
    I support her suggestions. Britain now has a Cabinet-level
    position to deal with human slavery and that says something
    about the commitment of that government and country to the
    issue. With that kind of leadership, it provides the
    opportunity for the country to be inspired, to heed the call
    for both good corporate citizenship and personal involvement.
        Now, I am not saying that we should have a cabinet member
    on that, but what I am saying is that given the scope of the
    problem as the Chairwoman has indicated in the international
    scope of it, I think America should be viewed as stepping up to
    take a leadership role in the international fight and that
    could take many forms, but we should be at the front of the
    line on this, as this committee has been, and that will have
    impact.
        Mrs. Beatty. Thank you.
        Mr. Banafa?
        Mr. Banafa. Yes. I think that is an excellent question and
    I think it is important to understand that cryptocurrency is
    worthless without actual currency. The relationships between
    these cryptocurrency processors and financial institutions is
    an area that we need more understanding of and if necessary,
    regulation.
        BitPay, one of the largest cryptocurrency processors in the
    United States, had said publicly that they have relationships
    with multiple financial institutions, including institutions in
    the U.S., but that those institutions did not wish to be
    disclosed publicly. I think that is very telling regarding the
    role of cryptocurrency and their financial institutions in the
    United States.
        Chairwoman Wagner. Thank you.
        The gentlelady's time is expired and I appreciate the
    committee's indulgence in letting the witnesses expound on a
    very important question.
        It is now my pleasure for the Chair to recognize the
    gentleman from Georgia, Mr. Loudermilk, for 5 minutes.
        Mr. Loudermilk. Thank you, Madam Chair, and I really
    appreciate the hearing here and all of our witnesses. A very
    difficult subject from not only the emotional aspect and the
    stories we hear, but the heavy lift that we have to do to deal
    with this horrendous crime.
        Dr. Shelley, we are currently updating the Bank Security
    Act and we have had several hearings in some other
    subcommittees and full committees on this, the updates, which
    it needs to be updated to actually incorporate new technologies
    and the new financial systems that we deal with today. But it
    is interesting in one of the hearings recently, many of the
    bankers, they came in and testified, it was that they
    understand the importance of the SARs that they fill out, the
    Suspicious Activity Reports.
        But, some of the criticism is there is often suspicious
    activity that does not just fit right within the scope of the
    law that they would want to be able to report, and the other
    part which I found intriguing was quite often, they never get
    feedback from law enforcement on the reports that they submit
    that would help them to actually identify more trends of what
    are the activities that are being done for nefarious causes
    versus like when I had a business, every month, because I had a
    payroll processor, I transferred $10,000, $20,000 a couple of
    times a month, wired it out. Of course, that would generate a
    SAR, but that was nothing suspicious. Do you have any thoughts
    on that as we look at updating the BSA?
        Dr. Shelley. Absolutely. You are getting to the heart of
    the problem, is that from a banking point of view there is
    rarely that one piece of information that you report in the
    SARs that reveals human trafficking. Just as in the report that
    I did for the World Economic Forum which summarized the data
    mining that J.P. Morgan was successfully doing and finding
    cases, there were about eight elements that were needed to
    locate a human trafficking or a suspected human trafficking
    organization.
        There may not be so many elements now, but it is not one or
    two things. Therefore the way the SARs is designed doesn't get
    at the problem and Government regulators are drowning in SARs.
        Mr. Loudermilk. Right.
        Dr. Shelley. We need to use the greatest advances that we
    are having now in looking at the enormous data that we are
    collecting. We need social science. We need victims. We need
    people who have insights into how trafficking operates and then
    transfer this into data analytics. It is not something that
    bankers can do themselves, and that is the wonderful thing of
    the shared wisdom on this panel. This diversity is really going
    to help you get to this, the complexity and the diverse
    elements you need to move into a new way of thinking about
    analyzing and finding risks in banking.
        Mr. Loudermilk. Thank you. Another issue that we have
    discussed now in two Financial Services Subcommittee hearings
    today, we are going to be discussing more often is this aspect
    of cryptocurrency. Now, with the strength of the cryptocurrency
    becomes the weakness for us for things like this, and it is the
    anonymity of it which actually makes it a prime solution for
    cyber security risk that we have. Many businesses are looking
    at this block chain technology because it is superior in
    decentralizing, but it does create a problem in the law
    enforcement realm.
        I think I am going to see more use of prepaid credit cards,
    the more that we have cyber breaches, Government is probably
    the biggest culprit of cyber breaches after today, I personally
    know more and more people, when they get a paycheck, they buy
    prepaid credit cards to do all their transactions with. They
    are not doing anything illegal and nefarious, but because the
    fear of their money being at risk through cyber crime.
        I think that it is not the cryptocurrency itself, it is the
    block chain technology that I think is going to be a reality we
    have to deal with. I think we are going to have to not try to
    regulate it through legacy standards, but come up with new
    regulations.
        Mr. Vance, with this, what are the tools that law
    enforcement is using now specifically with cryptocurrency? I
    know we were able to take down Silk Road. I do not know if we
    actually were able to get the perpetrators, but we were able to
    take the site down with Silk Road. What are the tools that we
    can use today going after the cryptocurrency users?
        Mr. Vance. I think first and foremost is to find a human to
    be able to explain what is happening, that is old fashioned
    inside witness who may be seeking leniency. Some of our old
    techniques are just as important as they always were in terms
    of understanding how money is moving and then how we can
    interrupt that.
        But clearly, generally speaking, Representative, we have
    become much more sophisticated in our ability to use technology
    to identify, to start to paint the picture just by dots filling
    in. I think our technology is much stronger in terms of
    identifying where the issues are and what investigative leads
    we could follow. But at the end of the day, separating intel
    from prosecution, I do think cases are going to be made where
    people are going to actually have to get up there and testify
    and that is going to still be the most important evidence we
    have, I believe.
        Mr. Loudermilk. Thank you.
        Chairwoman Wagner. The gentleman's time is expired.
        The Chair now recognizes our Ranking Member, Mr. Al Green,
    for 5 minutes.
        Mr. Green. Thank you, Madam Chair.
        Again, I thank the witnesses for appearing. I would like to
    deal with something that may appear to be a bit mundane, but I
    think is absolutely necessary to confront. It is indicated in
    the intelligence that has been reported to me that in 2014, the
    Urban Institute estimated that the underground sex economy
    ranged from $39.9 million in one American city, we need not
    name the city, to $290 million in another American city.
        This is a lot of money. We also know that this is a cash-
    intensive business which means that there are some persons
    masquerading with a facade of legitimacy that are walking into
    banks, leaving cash-intensive businesses and they are making
    deposits. We know that laundromats are cash-intensive. We know
    that night clubs, businesses where you bring cash at the door
    and you don't get a receipt. We understand that restaurants,
    car washes, cash-intensive businesses.
        I do not know if there is a profile on the typical
    perpetrator, but we have to at some point expose the fact that
    a lot of people who are masquerading as legitimate business
    people are fronts for the bagging of the money and placing it
    into commerce. We have to go after them, but we have to expose
    them and the world needs to know who they are, because if we
    don't, in a sense, we are allowing them to continue to have
    this veneer of legitimacy.
        Mr. District Attorney, to what extent have you been able to
    infiltrate these professionals in some circumstances who are
    masquerading as legitimate business people?
        Mr. Vance. We opened up our Human Trafficking Response Unit
    in 2012. We have had dozens of indictments and obviously
    investigations, scores of investigations. Congressman, I am not
    aware of us having found a business such as you described and
    identifying that as the source for money laundering of a human
    trafficking operation.
        But what we do see and the way we approach these
    investigations now are not as sex crimes investigations but
    business crimes investigations, because this is a business.
    What has changed from I think our prosecutor's perspective is
    we are using all the traditional investigative techniques that
    go along with business investigations: Search warrants,
    subpoenas, identifying assets, seizing assets, this is how we
    get at the traffickers.
        Mr. Green. May I just intercede and suggest this, what
    about--you talked about human capital in terms of ascertaining
    your intelligence, acquiring your empirical evidence. What
    about surveillance? In my city, there is a business that never
    has cars at that location, but we know that it stays in
    business. It deals in the purveying of paraphernalia for sex.
    Never any cars there, but they stay in business. Wouldn't that
    kind of surveillance at least give some indication that there
    may be something untoward occurring there?
        Mr. Vance. Absolutely. The investigations begin on tips and
    observations and then, as you well know, they then require
    manpower to staff those investigations and stay the course.
        You are right, absolutely, and I am sure the law
    enforcement and I am sure that our office from time-to-time
    just misses the thing that is right in front of our eyes
    because we are not paying close enough attention. It happens.
    But I think our goal is obviously, with experience and with
    help from a variety of experts, to really try to minimize those
    misses to the smallest degree we can.
        Mr. Green. I assume that all of the persons associated with
    banking, the persons associated with the various departments of
    the constabulary, all of them are honorable people and that
    they all mean well, but I do believe as has been indicated,
    that the people who are engaged with the people who purvey,
    they have something to share with us that may be a bit more
    nuanced and mundane but that can make a difference. I do
    appreciate what you said.
        Now, I have gone 12 seconds over. I am going to ask for
    unanimous consent to have one more minute, Madam Chair.
        Chairwoman Wagner. Without objection.
        Mr. Green. Thank you.
        I want to now go back to the person who has had an
    experience that I don't celebrate in any way, but I am
    appreciative that you are amenable to sharing your thoughts
    with us. I am just curious. As it relates to you, what was it
    that gave you the courage to step away? You mentioned a little
    bit earlier and I do not mean to give you so little time, but I
    am interested in knowing what broke the bond?
        Ms. Frundt. Thank you for asking me that question. I need
    people to understand that you get tired of being sick and tired
    and that really means that, I didn't have services or anything
    like that. You get tired of repeating your same mistakes over
    and over and over and over and there is no outcome. It is a
    scary thing to go out on your own to do something different
    every day that you didn't do different before to get a
    different outcome.
        For me, I got tired of being sick and tired. Thankfully,
    drugs has never been my issue because I am sure if I was
    addicted or did any drugs in life, that would have been an
    issue for me. The issue for me was convincing myself I was
    smart, convincing myself that I can pull my negative into
    positive and see in the world that everybody else thinks like
    this is the world, me, this is a new world for me. I hadn't
    lived in a world where people did not do criminal activity.
    Like, I did not know how to survive in this world.
        To be honest with you, it is more of that, of getting sick
    and tired and not knowing how to fix things and trying your
    best to get a different outcome than what you had before.
        Mr. Green. Thank you.
        Madam Chair, I ask unanimous consent that you would be
    allowed to consume as much time as you may for questioning.
        Chairwoman Wagner. Thank you. Hearing no objection, I have
    one other area and I thank the Ranking Member for his support
    and for his indulgence here.
        One thing that we have not explored too much, I want to get
    a little bit of your background and information on is dealing
    with these gift cards. We hear a lot about how money is loaded
    on to these gift cards and they are used for payments for
    services on websites, review sites, whatever it may be. Ms.
    Frundt talked about even Facebook and Snapchat, and Instagram,
    and other avenues.
        Mr. Banafa, I understand that there are now websites that
    cater to people interested in trading or even selling gift
    cards for cash. How do these websites ensure that payments for
    these gift cards are not facilitating child sex trafficking?
        Mr. Banafa. Thank you very much for that question, Madam
    Chair. To clarify, and I didn't go into this in my written
    testimony, there are two types of gift cards that we have
    discussed today, open loop gift cards and closed loop gift
    cards. Open loop gift cards include prepaid Visa and Mastercard
    cards. Those are cards that allow you to reload with cash and
    are not limited to a single merchant.
        There are also gift cards that are limited to a single
    store, such as Starbucks gift cards. Those cards are now being
    used on websites to purchase access to The Erotic Review, and
    purchase access to other merchants that wish for their
    customers to remain anonymous.
        Chairwoman Wagner. City Guide, Eros, any of these websites
    out there, correct?
        Mr. Banafa. Yes.
        Chairwoman Wagner. Alright.
        District Attorney Vance, any thoughts regarding the gift
    cards and how they are really facilitating child sex
    trafficking, also knowing that they are so easily transportable
    and that there are few ways that law enforcement can perhaps
    track their movement?
        Mr. Vance. Madam Chair, I do not have anything smarter to
    say than the last witness. This is where we are. We want
    anonymity. Now, we have it, but there is a cost. Ultimately, it
    then comes back to you, the legislators, to figure out where do
    you draw the bounds. It is just like encryption.
        We have ceded in the Internet world authority to the
    players of the world without regulating it, and we are now
    coming to a time in our culture where we will see the
    consequences of that total un-regulation is behavior that is
    occurring right in front of us that we know is awful, but we
    don't yet know or have the willingness to step in and say, ``We
    are going to impose some laws here.''
        At the end of the day, I think that is what we are going to
    have to do if you want to actually take on the kinds of funding
    questions that you are exploring, and a lot of folks won't be
    happy if you do that. But a lot of us will say, ``This is--we
    need to strike a balance not to have an all or nothing approach
    to these issues.''
        Chairwoman Wagner. As I think you so well stated at the
    beginning of your testimony, certainly, we are all entitled to
    privacy, but not necessarily anonymity, especially as it
    pertains to criminal activity, especially when it pertains to
    the exploitation and victimization and rape of tens of
    thousands of women and children and young men and boys not just
    across our country, but globally. It is absolutely abhorrent
    and it is something that when I served as a United States
    Ambassador in Western Europe, I was introduced to this horrific
    crime coming frankly from Eastern Europe.
        Never did I realize until I returned home and began to
    delve in, that again it was happening right here in the United
    States of America. It is incumbent upon the Congresswomen Moore
    and Beatty and certainly our Ranking Member here, Congressman
    Green, and myself and others to stand up for those who have no
    voice, to give you the tools and the resources so that you can
    put these criminals behind bars. We have no business in the
    United States of America to turn a blind eye to modern-day sex
    slavery which is exactly what this is.
        It is our duty to protect our victims and give them the
    support and the resources and the tools to rehabilitate their
    lives. I appreciate all of your testimony. I appreciate some of
    the new areas that now we are going to delve into here,
    especially as it comes to some of the online social media sites
    that, we talked about the websites, but we haven't necessarily
    gone into all the Facebook, and the Instagram, the Snapchat and
    things of this nature, it is an evolving and fast moving
    technological world that we are in.
        Mr. Banafa, what you had to say about Cyprus and some of
    the domestic platforms, financial systems that are really
    enabling the money to be had, popup shops, the credit score
    issues. I look at vacator laws that we fight for to allow a
    judge to be able to say, ``If you were accused of a crime, by
    virtue of the fact that you were a human trafficking victim,
    perhaps that crime should have the opportunity to be vacated so
    that you can get an apartment, find a job, go back to
    schools.'' But the credit score issue is something that I do
    not think we have looked at either.
        I want to thank you all. I know that the Ranking Member has
    something he would like to add to the record.
        Mr. Green. Yes. Thank you, Madam Chair.
        I have a letter from Ms. Christina Bain. Ms. Bain is an
    expert on human trafficking and has focused on addressing the
    role of business and entrepreneurship in the fight against such
    trafficking. With unanimous consent, I would be pleased to
    place this in the record.
        Chairwoman Wagner. Without objection.
        I would like to thank our witnesses again for their
    testimony today, but more importantly for being on the front
    lines. We look forward to working with you as this committee
    and this Congress delves into these issues that are cutting-
    edge, things that are evolving quickly. We want to call upon
    your expertise, your advice, and your support and thank you for
    the work that you are doing to fight this horrific crime.
        Without objection, all members will have 5 legislative days
    within which to submit additional written questions to the
    Chair which will be forwarded to the witnesses. I ask our
    witnesses to please respond as promptly as they are able.
        I thank you again for your testimony here today, and most
    of all for what you are doing to fight the scourge of human
    trafficking here in the United States and frankly across the
    world.
        This hearing is now adjourned.
        [Whereupon, at 4:07 p.m., the subcommittee was adjourned.]

                                A P P E N D I X

                                January 30, 2018

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