[Senate Hearing 116-87]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 116-87

 
    HUMAN TRAFFICKING AND THE INTERSECTION WITH OUR FINANCIAL SYSTEM

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

                             FIELD HEARING

                               before the

                            SUBCOMMITTEE ON
         NATIONAL SECURITY AND INTERNATIONAL TRADE AND FINANCE

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING HOW NEBRASKA IS FIGHTING BACK TO PREVENT AND ERADICATE HUMAN 
             TRAFFICKING IN THE STATE AND ACROSS THE NATION

                               __________

                           SEPTEMBER 3, 2019

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
  
  
                                
                                
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                            ______

               U.S. GOVERNMENT PUBLISHING OFFICE 
 38-406                  WASHINGTON : 2019                
                
                


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                 ______

 Subcommittee on National Security and International Trade and Finance

                     BEN SASSE, Nebraska, Chairman

          MARK R. WARNER, Virginia, Ranking Democratic Member

MARTHA MCSALLY, Arizona              BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas                  CHRIS VAN HOLLEN, Maryland
PATRICK J. TOOMEY, Pennsylvania      KYRSTEN SINEMA, Arizona
TIM SCOTT, South Carolina

            Katherine Duveneck, Subcommittee Staff Director

        Craig Radcliffe, Democratic Subcommittee Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       TUESDAY, SEPTEMBER 3, 2019

                                                                   Page

Opening statement of Chairman Sasse..............................     1

                               WITNESSES

Douglas Peterson, Nebraska Attorney General......................     2
    Prepared statement...........................................    23
    Responses to written questions of:
        Chairman Sasse...........................................    44
Julie Slama, State Senator, State of Nebraska....................     5
    Prepared statement...........................................    25
    Responses to written questions of:
        Chairman Sasse...........................................    45
Crysta Price, Director of the Human Trafficking Institute, 
  Creighton
  University.....................................................     7
    Prepared statement...........................................    26
    Responses to written questions of:
        Chairman Sasse...........................................    45
        Senator Warren...........................................    55
        Senator Sinema...........................................    59
David Murray, Vice President for Product Development and 
  Services, Financial Integrity Network..........................     9
    Prepared statement...........................................    33
    Responses to written questions of:
        Chairman Sasse...........................................    64
        Senator Warren...........................................    65

              Additional Material Supplied for the Record

Statement submitted by Louise I. Shelley, Omer L. and Nancy Hirst 
  Endowed Chair Director, Terrorism, Transnational Crime and 
  Corruption Center, Schar School of Policy and Government, 
  George Mason University........................................    67

                                 (iii)


    HUMAN TRAFFICKING AND THE INTERSECTION WITH OUR FINANCIAL SYSTEM

                              ----------                              


                       TUESDAY, SEPTEMBER 3, 2019

U.S. Senate, Subcommittee on National Security and 
                   International Trade and Finance,
          Committee on Banking, Housing, and Urban Affairs,
                                                       Lincoln, NE.
    The Subcommittee met at 2:00 p.m., at the Nebraska 
Department of Transportation and Highway Safety Office, 1500 
NE-2, Hon. Ben Sasse, Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF CHAIRMAN BEN SASSE

    Chairman Sasse. All right, this hearing will come to order. 
Thank you all for making time. Welcome to the first 
Subcommittee Hearing on Human Trafficking and the intersection 
with our financial system. Today, we'll be unpacking how 
Nebraska is fighting back to prevent and eradicate human 
trafficking in the State and across the Nation.
    We are pleased to be joined by four genuine experts on this 
topic, folks who've worked extensively to combat the scourge of 
human trafficking. We'll be hearing from Doug Peterson who is 
the Attorney General of Nebraska. He will be discussing the 
successful Human Trafficking Taskforce that was stood up in our 
State in 2015, as well as what Nebraska is doing beyond to help 
educate neighboring States. Since 2016, the Human Trafficking 
Taskforce has trained over 3,000 individuals in Nebraska and it 
consists of five regional teams.
    We're also going to hear from Julie Slama, State Senator. 
Julie has introduced and worked to pass comprehensive 
legislation to fight human trafficking. That's LB 519. She'll 
be speaking about the prevalence of human trafficking in rural 
areas, as well as the intersection between human trafficking, 
sex trafficking, and broader poverty across the Midwest.
    Crysta Price, who is the founder and CEO of the Human 
Trafficking Initiative Labs, known as HTI Labs, is joining us. 
When she was a student, Crysta co-led a team that created a 
theoretical model of international trafficking flows. And this 
led to a project focusing on the near complete lack of data on 
domestic trafficking. Ultimately resulting in the use of online 
advertisements, data science, and network analysis to identify 
potential trafficking networks within the human trafficking 
world. HTI Labs is recognized as one of the world's leading 
experts in fighting human trafficking.
    Finally, we'll hear from David Murray, who's the Vice 
President for Product Development and Services at the Financial 
Integrity Network. David will be discussing how criminal 
organizations can avoid detection through using financial 
institutions to shield their behavior. David has developed 
market leading counterillicit finance programs, when he's 
worked with global banks, money services businesses, and other 
FinTechs. Before joining FIN in 2017, for 9 years prior, David 
served as the Senior Advisor at the U.S. Department of 
Treasury, where he advised the Undersecretary for Terrorism and 
Financial Intelligence. And he coordinated more than 700 people 
working in the bank secrecy regulation space, international 
financial transparency standards, and more.
    When you think about human trafficking, and as we've had a 
number of media reach out to us in advance of this field 
hearing of the U.S. Senate Banking Committee, people don't 
often think of Nebraska. It turns out that Nebraska, like all 
the other States, have a huge human trafficking problem. This 
is a scourge by many people's estimates. There are more slaves 
on the face of the earth today than in any point in all of 
human history. Nebraska is fortunate though, to be one of the 
leading States trying to utilize all the available resources to 
combat and prevent human trafficking.
    Several organizations that have made Nebraska a State to 
look to in combating this evil are here today. And our 
unicameral has pushed back through passing strong legislation 
to address trafficking and to go after human traffickers. We 
have leading experts in the field with us today recognized 
throughout the world, because of their activities, to study the 
negative effects of this stain on our society. And people who 
take advantage of the most vulnerable in our neighborhoods 
obviously should be prosecuted to the fullest extent of the 
law. And our home State is leading the charge on that.
    Moms and dads have enough normal things to worry about 
without having the kind of evil of human trafficking to be 
something that we know exists across our State. We cannot keep 
letting victims down time and again, as has happened for many 
decades in the country. And this hearing is trying to look at 
the intersection between human trafficking and financial 
services networks to figure out what more can be done.
    Again, I want to thank all four of you for appearing before 
the Subcommittee Hearing of the U.S. Senate Banking Committee. 
I look forward to all of the testimony from all four witnesses, 
and we'll now proceed to that testimony. And we'll begin with 
Doug Peterson, Nebraska's Attorney General. Thank you General.

    STATEMENT OF DOUGLAS PETERSON, NEBRASKA ATTORNEY GENERAL

    Mr. Peterson. Thank you Senator, and thank you to your 
Committee to come to Lincoln and address this important topic. 
You'd mentioned a little bit of the history, I'll cover that 
briefly and then give a little bit of update where we're at and 
then how your Committee might be of help.
    When I took office in January 2015, Nebraska had a law on 
the books with regards to human trafficking, but it was a very, 
very limited law. And as a result, Nebraska, on a national 
level, was rated very poorly as to our ability to address human 
trafficking. But we proposed some legislation to the senators 
and the Nebraska unicameral has been very--they've been strong 
leaders in moving forward with legislation to help now Nebraska 
rate as one of the higher rated States in addressing human 
trafficking.
    We've strengthened the penalties; we've strengthened 
definitions; we've strengthened the ability for law enforcement 
be able to gather important information. So in the 5 years--
four-and-a-half years, it's been very encouraging to see.
    The first two parts of the really our human trafficking 
laws been in the area of training and awareness, and that was 
2015, 2016. As you mentioned, a lot of Nebraskans would not 
have perceived that human trafficking took place here. In fact, 
I know my wife and I used to support a ministry called Tiny 
Hands in India. So human trafficking was a foreign problem in 
those countries and then all of a sudden recognized now, in 
fact, we have human trafficking in Nebraska.
    The relationship that the State Government has with Federal 
authorities is very important. Because prior to 2015 Nebraska 
is primarily dependent on the Federal laws and Federal law 
enforcement. There was an Omaha Human Trafficking Taskforce, 
which was led out by the FBI, and it had the Omaha police, 
Douglas County Sheriff, State Patrol. It was a very effective 
task force in addressing human trafficking and had some very 
important cases that they were successful.
    The problem was in Nebraska, if you got outside of the 
Omaha Taskforce, we just didn't have the laws or the awareness 
to how to address human trafficking. So in 2015-2016, the laws 
were passed, we were able to get some really good training 
across the State for law enforcement. But also, we're also able 
to develop some great awareness. One of the examples was the 
segment that a lot of--it's estimated over 80 percent of those 
who are trafficked are going to, at one time or another come 
and have medical needs in your community.
    One of the examples that I thought was very powerful as to 
the importance of awareness and training, is the training 
program was focused on the medical community. And there 
happened to be an emergency room doctor who attended one of the 
day programs. She went back to her medical clinic, as a trauma 
clinic, and there was a young lady brought in by a young man. 
She was pregnant, barely showing. The young man seemed very 
impatient about this whole process, didn't seem like a father, 
bringing his wife in to see how the baby was doing.
    This was a much different presentation. As a result, she 
found that odd and she had this recent training, when she took 
the young lady back into the examination room. She identified a 
barcode tattoo right under her panty line, and that she had 
learned from the training program was a classic example of 
someone being trafficked. And sure enough contacted law 
enforcement, and was able to confirm that this is a young lady 
being trafficked across the State, interstate trafficking. And 
because of that awareness that the doctor had, it was an 
important example of why this to important.
    There's been a lot of work done in the trucking industry, 
education community. So I think the awareness is always going 
to be something that we have to stay in front of. But I think 
the State of Nebraska today is far more aware of what human 
trafficking might look like and how to respond to it.
    The other important element of our efforts under the 
Nebraska law was the training awareness, but then developing 
the task force across the State. So we have five regional task 
forces that have been set up across the State of Nebraska. They 
include law enforcement; they include care providers; they 
include groups like the Child Advocacy Center, which is an 
important partner in this effort.
    Those law enforcement networks across the State have helped 
us have both a focus collectively as a State, but they have put 
us in a much better position, if we have an incident in 
Chadron, Nebraska. An incident in O'Neill, which we did have. 
We now have a trained team and they know how to work together 
with those in their region to address this trafficking 
complaint.
    O'Neill, Nebraska, as you know, is a fairly small 
community. We had a trafficking situation there where a young 
girl was actually trafficked from Tennessee through Arkansas, 
and to the customer up in O'Neill. Again, when you have that 
type of interstate activity working closely with the Feds is 
helpful, but to have that trained task force up in the O'Neill 
area was very helpful for us. You also have the issue of labor 
trafficking, again, working with the Feds has been an important 
partnership that we have there.
    I'm not going to go into a lot of detail of the enforcement 
activity that's taking place in 2017 and '18 because some of 
those are still ongoing investigations or prosecutions. But I 
would say that the relationship and the partnership that we 
have with Homeland Security and with the FBI is an important 
task force combination that I think has been very helpful. I 
also think working with Nebraska State Patrol has been 
critical. They've been really one of the lead law enforcement 
agencies for us across the State.
    But one of the things I feel is probably--is not heralded 
enough is how many--and you mentioned a little bit in your 
opening comments, of how many of these different private 
organizations from the faith community, from all different 
communities that have come forward, that have wanted to try to 
help. Whether it's helping with young ladies or young people 
after they've been taken out of a sex trafficking operation, or 
how they can help better educate. We have the nuns in Omaha 
who've taken on the hotel industry to better educate all hotel 
employees how to be aware of human trafficking. That wasn't a 
Government initiated effort. That was purely people who in 
their faith community cared about this and stood forward and 
started doing those important training programs. So those 
efforts have been really important and had been helpful for us 
also in the law enforcement.
    Just finally, in the area of finance what I would say in 
the several operations that we have had in Nebraska, those 
operations primarily been cash operations. But human 
trafficking is unique in the fact that human trafficking can go 
from a 20-year-old guy trafficking his 16-year-old girlfriend 
and paying her in meth, to that type of small operation all the 
way to a dark web operation with cryptocurrency that runs 
across State lines between Denver, Chicago, Minneapolis, and 
Kansas City.
    So you have the whole scope of potential financial 
arrangements. And that is key for us because financial, we have 
to show as prosecutors, we have to be able to show that this 
act was done for purposes of financial gain. And that's why 
working with Federal authorities and the Senate in this area 
will be important, because it's getting more and more 
sophisticated as to how they go about financing and how they go 
about trying to skirt that particular burden that we have. So I 
see my time is up, but I thank you.
    Chairman Sasse. General Peterson, thank you for your work 
and for your testimony. Senator Slama.

   STATEMENT OF JULIE SLAMA, STATE SENATOR, STATE OF NEBRASKA

    Ms. Slama. Thank you Senator Sasse. It's an honor to 
testify on a subject which has become one of my priorities in 
the legislature, human trafficking. Human trafficking is the 
fastest growing criminal industry worldwide. It was made a 
Federal crime in 2000 and Nebraska made it a crime on a State 
level in 2006. In the years that have followed, lawmakers have 
tried to give law enforcement the tools they need to crack down 
on this horrendous crime including, in the Nebraska 
legislature. I think you pointed it out very succinctly, human 
trafficking is modern day slavery.
    With regards to today's topic of the intersection of human 
trafficking with the finance sector, traffickers typically 
utilize banks, or other financial institutions, or 
cryptocurrency, or some form of money to fund their operations. 
As Attorney General Peterson referenced sometimes the currency 
used is not in money, but in drugs, unfortunately.
    Financial institutions can play a significant role in 
disrupting human trafficking. Some institutions have committed 
significant energy and resources to detect potential financial 
indicators of human trafficking by using training toolkits. Red 
flags to financial institutions include, but are not limited to 
trafficker's lifestyle being inconsistent with their stated 
income. A trafficker using the victim's account. Carefully 
structured deposits to avoid detection. So just under that 
marker that would spur an investigation. Strange deductions on 
an employee's pay stub or large sums of money transferred to 
several banks.
    At times, deposits are made to accounts for massage 
parlors, or cantinas, or other shell businesses creating a 
seemingly legitimate business to cover for reporting purposes. 
Financial institutions are on the front lines, monitoring 
transactions and spending patterns. However, some traffickers 
avoid financial institutions altogether and will only make 
transactions using cryptocurrency or prepaid credit cards.
    With the shutdown of Backpage.com and Massagerepublic.com 
and because Visa and MasterCard refused to process payments 
from these sites and other known trafficking sites, 
cryptocurrency has become more prominent for its unfettered 
use. Prepaid credit cards are also hard to trace, thereby 
giving a trafficker a way to use funds without being 
identified.
    So another way that traffickers avoid scrutiny from 
financial institutions is to force their victims to use their 
own accounts for transactions. When this happens a financial 
institution may notice red flags, such as frequent hotel and 
gas station expenses, or there may be other history of unusual 
domestic travel expenses. In these cases, traffickers avoid 
putting his or her name on the victim's account, which ensure 
that any crime being committed is buried fully by the victim 
and that the victim is left to pay off the debts of their 
trafficker.
    Handling funds generated from human trafficking can be 
considered money laundering. If money laundering is suspected 
through not only the victim's account, but regular business 
accounts that could be those shell companies, a financial 
institution may attempt to go after a trafficker via the money-
laundering ring. This has been a very effective method of 
obtaining justice for the victims.
    Nebraska has taken many positive steps to fight human 
trafficking over the last several years. Beginning in 2006, 
when Nebraska made human trafficking a crime, there have been 
several updates to our State statutes to fight this scourge.
    Not only has the Nebraska Attorney General's Office created 
the Human Trafficking Taskforce, but Nebraska has also 
increased penalties for traffickers and buyers. Victims of 
human trafficking are allowed to sue their traffickers and 
trafficked children and adults are provided immunity from 
prosecution.
    Victims of sex trafficking can clear the records of 
prostitution charges and other offenses that are a direct 
result of them being trafficked. Just this year with LB 519, 
the Nebraska Legislature updated its statutes to provide 
wiretapping powers to law enforcement agencies, extend the 
statute of limitations for trafficking, and ensure that all 
children who are victims have the same access to resources for 
recovery regardless of who trafficked them.
    The Trafficking Victims Protection Act of 2000 was passed 
in the first positive steps to fight trafficking on the Federal 
level. This Act has been updated four times, most recently in 
2013, to include establishing a Federal civil right of action 
for trafficked victims to sue their traffickers. Adding human 
trafficking to the list of charges under Racketeering, 
Influence and Corrupt Organizations Act, RICO, establishing 
grant programs to State and local law enforcement to combat 
trafficking, and enhancing criminal sanctions against 
traffickers and expanded definitions of various types of 
trafficking.
    The Federal Government also established the National 
Defense Authorization Act of 2013, which among other goals, 
seeks to eliminate human trafficking associated with Government 
contractors. Under this Act, Government agencies have the 
ability to terminate, without penalty, any contract or grant 
with any organization that engages in human trafficking. It 
establishes methods of reporting and investigating possible 
instances of human trafficking associated with any Government 
contract or grant program.
    Human trafficking is a growing industry and make no mistake 
about it, it is not limited to urban areas. It reaches across 
our country, even to rural Nebraska, even the southeast 
Nebraska in District One. We all have a duty to fight back 
against this horrible crime and our financial institutions can 
take the lead in spotting signs of trafficking. That's the 
close of my testimony. Thank you.
    Chairman Sasse. Thank you Senator. Ms. Price, thank you for 
being here.

 STATEMENT OF CRYSTA PRICE, DIRECTOR OF THE HUMAN TRAFFICKING 
                INSTITUTE, CREIGHTON UNIVERSITY

    Ms. Price. Thank you. The hidden nature of this particular 
crime means that estimates of its prevalence are often 
inconsistent and inaccurate. Most conclusions about trafficking 
are based on a small portion of survivors who have been able to 
come forward. Well-developed data infrastructure is required to 
overcome this challenge, and effectively identify and combat 
trafficking.
    We try to assist our community in meeting these goals by 
developing the data infrastructure to link existing cases on 
known situations of trafficking, and by developing information 
that doesn't yet exist on potential victims who could be 
trafficked. We also work to develop better communitywide 
processes for more effective victim response and support.
    Our efforts are united by the understanding that it is 
nearly impossible to identify trafficking from one source 
alone. It necessarily requires community partnerships where 
financial institutions play a key role. While we also work with 
service providers, policy makers and State and local agencies, 
I'll confine most of what I'll talk about today to our work 
with law enforcement, because it's through that collaboration 
that we've been able to work with financial data.
    This work occurs through the Nebraska Human Trafficking 
Taskforce, led by the Attorney General. We have been very lucky 
to be able to have a close relationship with law enforcement 
across the State, from NSP to Grand Island Police Department, 
and none of our work could have been possible without such 
relationships.
    Financial institutions have undertaken praiseworthy efforts 
to develop indicators and red flags. While the approach can 
reveal a subset of trafficking instances, it's exceptionally 
difficult to identify a situation of trafficking from financial 
data alone for a few reasons.
    First, traffickers' financial behaviors mimic money 
laundering for any other type of crime. And so it's difficult 
to say specifically that it's trafficking.
    Second, the crime of trafficking is defined by elements of 
force, fraud, and coercion. And these elements are not 
necessarily evident in financial institution data. The 
information necessary to establish trafficking comes through 
investigations that include nonfinancial sources.
    And third, the commercial sex market in general, and 
specific trafficking organizations in particular, have shown 
themselves to be extremely adaptable in the face of attempts to 
limit their activity by financial institutions.
    This point is illustrated by a Homeland Security 
Investigations case that we were lucky to support. During the 
course of the investigation, the network's bank accounts were 
flagged as suspicious and shut down by the financial 
institutions. But the traffickers simply shifted to using 
Western Union transfers and continued their operations.
    In my view, finding otherwise missed instances of 
trafficking requires shifting from static red flags to active 
ongoing information sharing between financial institutions, 
researchers who can uncover trafficking, and law enforcement 
officials who can investigate it.
    Our collaborative work on the investigation I just 
referenced where we jointly developed a lead with HSI 
illustrates the promise of such cooperation and information 
sharing. They were able to find a receipt for a bank 
transaction which led to an email address. And that email 
address, when shared with our research center, enabled us to 
uncover additional advertisements that were part of the 
network. And that allowed us to really see how widespread that 
network was.
    HSI then used this information to determine which 
advertisements to subpoena. And this subpoenaed information 
allowed us to understand the organizational structure. So all 
of that information came together to understand what it is we 
were looking at. When HSI compared our data with account data 
from financial institutions, they were able to map the movement 
and identify the ringleaders.
    In doing this, they discovered that one of the locations 
belonged to someone who regularly received deposits from up to 
30 different financial accounts. And so you can see it sort of 
spread across and decentralized across multiple different 
financial institutions.
    Essentially, our scraping and exploiting, at the time, 
Backpage helped our law enforcement partners know that the 
initial lead was not just this one off prostitution case in 
Omaha, and it provided an understanding of the structure and 
magnitude of the organization. That financial data was really 
critical because it led to the identification of the actual 
perpetrators responsible.
    This all-source data effort led to the dismantling of the 
largest international sex trafficking organization to date. And 
we were subsequently told that the results of the case advanced 
a second major case, which dismantled the largest national sex 
trafficking organization to date.
    The trafficking industry is always evolving, but this is 
particularly the case when we are targeting it. For example, 
the shutdown of Backpage and the subsequent FOSTA/SESTA 
legislation. This doesn't mean that we should avoid targeting 
the industry altogether, it just means we need to be able to 
respond and operate in the shifted landscape.
    This highlights the importance of conducting ongoing 
research to understand how we can connect the dots to identify 
networks in an environment where the new commercial sex 
websites are operating in foreign countries not subject to U.S. 
law enforcement subpoena requests, in an environment where 
online commercial sex advertising is more decentralized than 
ever across dozens of websites, and previously identifying 
information, such as phone numbers, are increasingly randomized 
through apps.
    Government can play a particularly central role in this 
environment by easing access to past commercial sex ads 
contained in Backpage records, by working with other 
Governments to make it easier to access the records of foreign 
companies that host ads for commercial sex, and by facilitating 
raw data sharing related to human trafficking.
    Perhaps the most solvable obstacle is the struggle that 
some of our partners have had in accessing the Backpage 
records, currently in the custody of the FBI. This has 
constrained our development of new leads and made it difficult 
to move forward with ongoing cases. It's important to 
recognize, I think, that there are pockets of innovation across 
the country developing new methods to uncover these networks, 
and among them is the financial industry, Memex, Thorn, and HTI 
Labs. There are a lot of really interesting pockets of this 
innovation happening.
    There are a lot of significant hurdles to integrating all 
of this information. But it has been critical to our ability to 
identify situations of trafficking here locally and expanded to 
cases nationally and internationally. Thank you.
    Chairman Sasse. Thank you, Ms. Price. Mr. Murray, thanks 
for being here.

     STATEMENT OF DAVID MURRAY, VICE PRESIDENT FOR PRODUCT 
     DEVELOPMENT AND SERVICES, FINANCIAL INTEGRITY NETWORK

    Mr. Murray. Thank you Chairman Sasse for convening us here 
to discuss human trafficking and its intersection with the 
financial system. And thank you for the invitation to testify. 
It is an honor to be here.
    Human trafficking is highly profitable, generating more 
than $150 billion a year. Human Trafficking interacts 
extensively with the financial system in contrast to other 
types of criminal activities whose touch points are usually 
more discreet. Drug Trafficking for example, is overwhelmingly 
a cash business and the proceeds of the crime are held as cash 
well into the money-laundering cycle. Fraud typically targets 
money that is already in the financial system through 
transactions that are designed to appear legitimate.
    In contrast, human traffickers may receive money from 
buyers either in cash or through electronic means and the 
transactions that are vital to operating their businesses may 
be small or large. As a result, human trafficking has many 
intersections with the financial system. At lower levels of 
human trafficking organizations, human traffickers have used 
cash, retail payment systems, online payment systems, and 
cryptocurrencies. At higher levels of human trafficking 
organizations, human traffickers have exploited anonymous 
companies to conceal their activities.
    Federal, State, and local officials have worked with the 
financial industry to disrupt human trafficking organizations 
and push them out of the financial system. But as you've 
already heard, human trafficking is difficult to combat because 
the financial transactions associated with human trafficking 
dwell in parts of our financial system where transparency may 
be poor. Small payments carried out through retail payment 
systems, online payment systems and cryptocurrencies, and large 
payments carried out through anonymous companies.
    Human Trafficking demands a swift response that enables 
financial institutions to prevent financial transactions 
related to human trafficking, or to detect them quickly once 
they have occurred. We can better protect our financial system 
by banning anonymous companies, strengthening cryptocurrency 
regulation, and improving transparency of retail and other 
consumer payments systems.
    My first recommendation is that Congress pass legislation 
that bans anonymous companies. Give us a Cash Act that was 
released in June is one of several legislative efforts to 
eliminate this vulnerability in the U.S. financial transparency 
regime. Anonymous companies have been a persistent weak spot in 
our efforts to prevent money laundering and disrupt criminal 
organizations. They were mentioned in the first ever national 
money-laundering strategy in 1999 and highlighted as a major 
vulnerability in the National Money Laundering Risk Assessment 
in 2018.
    Anonymous companies are the ultimate utility player in a 
money-laundering operation. Their primary role was to conceal 
criminals' identities, but they can do much more. Anonymous 
companies can conceal relationships among the parties to a 
transaction, to defeat financial institutions anti- money-
laundering detection systems. They can also conceal sanctions 
evasion, as in the case of ZTE or North Korea. And they can 
hide politically exposed person's interest in the transaction, 
as seen in the behavior of corrupt officials in Venezuela and 
throughout the world.
    Human trafficking organizations and other transnational 
criminal organizations have exploited anonymous companies for 
decades. In many places in the United States, obtaining a 
library card requires more documentation than forming a legal 
entity. The ease with which anonymous companies can be formed 
makes identifying criminals more difficult, lengthening the 
time that it takes more enforcement to disrupt human 
trafficking networks, if they can disrupt them at all.
    My second recommendation is that Congress create a new 
class of financial institution under the Bank Secrecy Act, or 
BSA, to cover firms involved in virtual currency transactions. 
Virtual asset service providers, or VASPs, should include 
service providers that are already covered by the BSA, as well 
as virtual assets services that currently fall outside the 
scope of the BSA. Protecting virtual assets from illicit 
finance will become even more important as virtual assets 
become more credible challengers to existing consumer payment 
tools.
    Virtual assets are vulnerable to elicit finance because 
they offer rapid and irrevocable settlement and the potential 
for anonymity. Importantly some virtual assets are traded 
through decentralized networks. In other words, there is no 
entity performing a governance function and controlling in 
addition to the payment system.
    In practice, the lack of a central oversight body means 
that anyone can create a VASP and begin facilitating 
transactions. Effectively safeguarding virtual assets requires 
a regime that acknowledges that VASPs are not a unitary class 
of financial institutions and instead recognizes that VASPs 
play different roles in facilitating virtual asset 
transactions.
    Some VASPs are currently regulated as money transmitters 
under the BSA. Others are not regulated at all. Even for those 
VASPs currently regulated as money transmitters, the 
regulations are insufficient to protect virtual assets from 
exploitation, because the assets are not subject to the 
customer identification program rule where the customer due 
diligence rule.
    The most important actor in virtual asset transactions is 
the party that validates the transactions. The validators are 
the essential actors in virtual currency transactions, they are 
as important to virtual asset transactions as credit card 
system operators are to credit card transactions. And virtual 
asset transaction validators are in the best position to govern 
virtual asset networks and control admission to virtual asset 
networks. Unfortunately, virtual asset transaction validation 
is not currently regulated under the BSA.
    My third recommendation is to revisit the payment processor 
exemption that is currently in the BSA. The exemption was 
codified almost a decade ago based on long standing practice in 
regulating money transmission. But the payments landscape has 
changed considerably over the past 20 years. As retail and 
other consumer payments evolve, the BSA must evolve with them.
    It is increasingly likely that the entity with the best 
insight into a business's financial activity is a payment 
processor that is excluded from the BSA. This leaves out 
payment systems vulnerable to criminal exploitation, and 
deprives law enforcement of valuable information. The payment 
processor exemption should be narrowed so the payment 
processors are covered by the BSA, when they have the best 
insight into merchant's activities and risks.
    The payment processor exemption is especially important in 
the context of human trafficking, because many of the human 
trafficking red flags rely on end to end visibility into 
consumer payments.
    Together these three recommendations modernize the BSA and 
position it better as a weapon for detecting and disrupting 
human trafficking, while also making sure that the BSA remains 
useful as electronic funds transfers to displaced cash in our 
economy.
    Thank you again for the invitation to be here. And I'd be 
happy to take any questions that you have.
    Chairman Sasse. Thank you Mr. Murray, and thanks to all 
four of you. I would like to start by talking a little bit 
about where leads come from, how we know what we know in a data 
sense in general, as we look at potentially human trafficking 
victims and trafficker networks. But also how ongoing training 
works as we try to inform the feedback loop to better 
legislation.
    And Ms. Price, I wonder if we could begin with you. I was 
one of the cosponsors of the legislation that Congress enacted 
to try to take away the liability exemption that Backpage was 
hiding behind. And obviously, the problems that's caused for 
Backpage is a good thing. But one of the unintended 
consequences probably is a dispersal of the marketing networks 
that makes it more difficult for people like you who are trying 
to get a global view.
    For folks who don't know much about this, do you want to 
explain the story of what happened--what Backpage was, what 
happened to them, and what the implications are now for you and 
your work?
    Ms. Price. Backpage.com was a website that looks and acts 
like a more criminal version of Craigslist, essentially. And 
most of the--actually 80 percent of the online commercial sex 
industry at that time, was advertising on Backpage.
    And the way that that would work is they would post ads 
that would essentially result in someone responding to the ad 
and then meeting up for a date. The commercial sex industry was 
sort of centralized through Backpage.
    And the way that that worked was that there were a lot of 
ads that were posted on there that were ultimately for 
trafficking victims. Backpage itself turned over about 400 a 
month, I believe, of minors who were advertised on the site. 
And there were a lot of survivors who were trafficked on 
Backpage and understandably very frustrated about that.
    The way that we were able to identify leads from Backpage 
is that we scrape those ads, which is essentially like creating 
a bot that's copy and pasting everything, and then write 
algorithms to make sense of it, to connect those ads into 
individuals and try to assess risk. Essentially looking for 
things like youth and other vulnerabilities, trying to connect 
the dots into specific networks.
    There were a couple of different things that happened in 
the legal climate surrounding Backpage. So back about 2 years 
before FOSTA/SESTA passed, Backpage was a website where you 
could just post ads through MasterCard, Visa, you'd use your 
credit cards. And then when MasterCard and Visa stopped 
processing credit card transactions on the site, what happened 
was that opened up this big period of free ads, were Backpage 
actually facilitated the sex providers in switching to cash and 
Bitcoin.
    We saw at that time a huge spike in ads. And then when the 
legislation was passed to hold them liable, ads were being 
posted all across the board. Now there are about a dozen or so 
websites, some major ones are now hosted and are operating out 
of the Netherlands. Places where the environment is legal for 
the commercial sex industry. And what that has meant for 
creating leads is the need to now scrape all of those new 
websites and then rework those algorithms to connect them 
across the different websites to still be able to identify 
specific situations of trafficking.
    The difficulty with that rests largely in the inability for 
the metadata to be mapped as easily. But the overall concept of 
being able to leverage all that data, then work with law 
enforcement to get feedback on whether that was actually a 
high-risk situation of trafficking. That process is still one 
that we in the community are moving forward on. And we have 
been able to find ways to try to build that feedback loop in by 
building platforms where we can pass those leads, and then they 
can get that feedback.
    The goal is to be able to incorporate other sources of 
information so that you aren't just essentially falling for 
their marketing, because that's really what those ads are. So 
it takes a lot of basic research into the industry to 
understand the way that it works so you're not making silly 
assumptions at the very beginning, there were some assumptions 
built into those risk indicators that didn't end up being 
accurate. But we're moving forward even though it is now a lot 
more difficult across the board.
    Chairman Sasse. Thank you. Very helpful. Attorney General 
Peterson where do most leads come from to Nebraska law 
enforcement and what are hopeful signs about where we might 
generate more leads to free these women and kids?
    Mr. Peterson. Well I appreciate the work that Crysta and 
her group have done, because Crysta's has been a good source on 
the Backpage. We refer to Backpage as low hanging fruit, 
because it seemed that's where some of the really low tech 
operations went to try to sell. And the type of work that 
Crysta had been doing is very helpful because they can look at 
key words that would indicate that they're trafficking young 
girls, typically.
    And one of the things I think is a big challenge is that 
we're finding across the country that human trafficking, 
markets are becoming younger and younger in age. I think the 
entry age in 2015 was probably around on average around 15 
years old and now I think the numbers around 13. The market's 
demanding younger girls paying more. It's a pretty sickening 
market.
    A lot of our leads actually come through our sting 
operations that we do. We'll set up, we can follow some 
internet traffic, I don't want to go into too much detail, but 
we can follow that to see where market activity--we've used 
Crysta's material. I know law enforcement across the State has 
used some of that information. So we'll follow traffic 
behaviors on the internet. And then we'll set up our own 
operations if we sense that there's potential buyers who are 
specifically looking for younger girls. Those are different 
sting operations that we can develop.
    It's rare that we'll get--one of the big challenges in 
human trafficking is I refer to the girls, but we need to 
understand there's young boys being trafficked also. They don't 
see themselves as victims oftentimes. In a large way they've 
been brainwashed to believe that they're working together with 
this person. Particularly with the girls being given promises 
that someday they'll get a lot of money.
    So it's very rare that you get a young girl who could run 
off to a phone and say I've been kidnapped, I'm being 
trafficked. It's really more through the sting operations and 
the internet that we try to go to find the activity.
    Chairman Sasse. Can you talk a little bit about that 
training exercises you've done with Nebraska State Patrol? 
You've been very active in the space I guess for 4 years, and 
my sense from talking to some patrol men and women, is that 
there was a very different mindset about what they thought they 
were encountering when they would sometimes find a trafficked 
person 4 or 5 years ago.
    Mr. Peterson. Yeah. In a lot of ways, changing the mindset 
in law enforcement was one of the initial goals or objectives 
in 2015. It used to be under our old laws that if you came into 
a hotel room, and you found a buyer and a 16-year-old girl, the 
perception was there you have a 16-year-old prostitute, and 
there you have the buyer, those were kind of two parties. And 
there wasn't really a concept, well number one it's a 16 year 
old. Legally, she's not at legal capacity to consent to 
something like that.
    And there wasn't this understanding and the fact that she 
could be the trafficked by a seller operation and under 
coercion and duress or force. That's why she's in that room.
    So it's been an effective 4 years of having law enforcement 
now identify what that looks like, so that they go into that 
room now, that young lady is going to be perceived first of 
all, as a victim, as a 16-year-old victim of trafficking. Now 
the facts and the investigation will be flushed out. But that's 
a different perspective. You don't go in and look at her as a 
criminal. You look at her as a victim, and how do we bring her 
in, get her confidence to explain who's been trafficking her.
    The other thing from a law enforcement perspective is 
they've just developed much greater awareness. One of the State 
troopers was telling me when, this about 2 years ago, out in 
the sand hills we were doing a program out there. And he said, 
we used to see cars that were obviously cutting across the 
rural sand hills area of Nebraska, and we'd first think we 
would think is drug interdiction. We were thinking they were 
trying to get from Denver to Minneapolis or to Rapid City.
    And he said, now we see them with any young lady in the 
vehicle, we're immediately thinking potential trafficking also. 
So they just have a much greater awareness as they're coming up 
in different settings where they have vehicles that they 
suspect could be trafficking and having that tool. And once we 
start the investigative process, law enforcement's new emphasis 
on this has been very helpful, because they're much more keen 
in working with us on sting operations and things like that.
    Chairman Sasse. Thank you. Senator Slama, you've been very 
interested in this and working hard on this issue since you got 
to the unicameral. Who do you learn from? Where do you learn? 
Why--how did this become an issue of yours and how do you take 
the next steps in ongoing education of the legislators, both in 
Nebraska and neighboring States?
    Ms. Slama. So in coming into 2019, which was my first 
session in the unicameral, I partnered with two of my senior 
senators, Senator Linehan and Senator Pansing Brooks. In 
addition, working with the Attorney General's Office to craft 
several different bills. Smaller bills that we were hoping to 
each individually make a dent in human trafficking across the 
State.
    I think my predecessors, including Senator Pansing Brooks, 
have done an outstanding job in shifting the narrative in 
Nebraska, like Attorney General Peterson referenced, and 
shifting that mindset from assuming that a minor girl who's 
found with a buyer is a prostitute and treating her as such.
    LB 519 represents and a combination of the bills that we 
were working on at the beginning of session. And it was very 
encouraging for me to see such an all-encompassing bill. I mean 
we extended the statute of limitations for minor trafficking 
victims to unlimited for adult human trafficking victims from 3 
to 7 years.
    Gave law enforcement agencies the wiretapping powers on 
suspected human trafficking rings. And made sure that our kids 
who are victims of trafficking have the exact same access to 
resources, regardless of whether they were trafficked by a 
parent or a caregiver, or another family member or a boyfriend. 
Because we saw loopholes in our State statutes that led to 
minors who are being trafficked, being treated differently 
based on who their trafficker was.
    And in continuing to change the narrative, I think the 
biggest--the most encouraging part was just the bipartisan 
support of this bill--so this wasn't a Republican effort, this 
wasn't a Democratic effort. This was something that even the 
older school, older male senators, were wholeheartedly on board 
with. There were times where we had to reiterate the difference 
between trafficking and prostitution, so that they could get a 
better grasp on why we were doing what we were doing.
    But I think that Nebraska has done an outstanding job in 
shifting that narrative from a prostitute being someone who is 
doing this of their own free will, to most of the time, being a 
victim of some person trafficking them.
    Chairman Sasse. You also mentioned briefly in your opening 
statement, but in a little more detail in your written 
materials, that victims are often forced to use their own 
payments for hotel rooms and things so that they can shield 
their trafficker from being exposed. Could you unpack that just 
a little bit more so that folks understand----
    Ms. Slama. Absolutely.
    Chairman Sasse. ----how that works? And what needs to be 
done to free these victims from after the fact being held 
liable for things that were done in their name, but not with 
their volition?
    Ms. Slama. Yes and Veronica's Voice actually has a very 
helpful reference guide for bank employees in understanding 
what the red flags are when a suspected trafficking victim is 
coming in and making payments. So oftentimes you'll see a 
victim coming in. Their lifestyle really doesn't match what 
their stated income is. They'll come in in nice clothes, nice 
car.
    You'll often see them come in and have somebody--it's 
typically their trafficker doing their business for them. 
Sometimes they can't speak English. Other times it's just the 
threat of intimidation. They're referred to as a handler.
    You'll also see consistent domestic travel expenses. So 
hotel room expenses that the person--that the trafficking 
victim has paid for themselves to prevent any red flags from 
coming up, gas station expenses, that sort of thing. To places 
where it wouldn't really make sense for a person to be 
traveling to. They live what is typically a very nomadic 
lifestyle for no real reason. And certainly not in line with 
anything that is listed on their official accounts.
    So there are toolkit's out there for everybody from bank 
tellers, to financial institutions too--I wanted to reference 
the toolkit that was just released by the Nebraska Hospital 
Association to where even our hospitals can play a role in 
noticing these red flags and taking action as necessary.
    Chairman Sasse. Thanks. Mr. Murray, you have a chance to 
see into a whole bunch of different countries anti- money-
laundering regimes. If you could pick any tools that other 
countries have that you wish the U.S. had, what would they be? 
What countries are particularly effective at countering some of 
this illicit behavior?
    Mr. Murray. Well I'd say the biggest is transparent company 
formation practices. That's really something that we need to 
work toward here. We are a laggard, we are behind the U.K., we 
are behind the EU, we are a laggard. And it's something that we 
need to fix here. It is a serious national security 
vulnerability that cuts across a number of programs the United 
States Government has, including the BSA, including all of our 
sanction's programs, including CFIUS. So it's the leading 
vulnerability, and it's something that we need to get much 
better at.
    Chairman Sasse. Thank you. You also have a lot of 
experience at the Department of Treasury. And the 2000 
Trafficking Victims Protection Act had a standalone sanctions 
program that has been not yet been implemented, is my 
understanding, that can designate significant human 
traffickers. Can you help us understand why 19 years after the 
law that hasn't been implemented? And if it were, how useful a 
tool would it be in identifying those significant traffickers?
    Mr. Murray. I believe that what Treasury has done has been 
to designate human trafficking networks under the Transnational 
Criminal Organization Authority. But I can confirm that and 
circle back with your team. You know it's quite often the case 
that OFAC has a series of overlapping authorities, and it will 
use the authority that's best suited for the evidence that it 
has at hand.
    So even though there is a standalone human trafficking 
authority, the Transnational Criminal Organization Authority 
may be more flexible and may make it easier for them to get at 
targets more quickly.
    Chairman Sasse. Thank you. Ms. Price, can we size this 
problem a little bit? I know you said that it's incredibly 
difficult to do because in the past, maybe 10, 15 years ago, 
the assumption was you can only extrapolate from victims that 
came forward and a tiny subset of them are going to do that. 
But do you have a theory of how we should be thinking about 
sizing, about how urgent--we know it's urgent, how large the 
problem is?
    Ms. Price. The most respected prevalence estimate out there 
tends to be the International Labor Organizations 2016 estimate 
of, I believe, 24.9 million victims worldwide of trafficking.
    In terms of what's happening here, when we were looking at 
the broader commercial sex industry, and we studied that for a 
few years, we saw about 900 individuals a month being 
advertised on Backpage in Nebraska. Trying to work to estimate 
trafficking risk within the industry is a big focus of ours.
    But about 15 percent of those individuals, we deemed to be 
definitely high-risk situations of trafficking. To be honest, 
in our work diving deeper into some of those situations, I 
think that we are underestimating it at that point. That line 
is somewhere between 15 and 35 percent.
    I think that the best way to answer the prevalence problem 
more generally is bringing together a way of estimating the 
larger industries that have a high risk of trafficking. And 
there is a lot of academic institution research on that.
    But the on the ground experience of law enforcement and 
service providers and survivors working with them is important 
to understand particular instances of trafficking. And then 
building a methodology to be able to use that to get more solid 
estimates. That's really the biggest goal of the academic 
community when it comes to trafficking prevalence estimates.
    Chairman Sasse. Could you map a little bit what the new 
tools are that you see coming online over the next handful of 
years? Like when for people who are new to this space, when you 
talk about different academics, institutions and particular 
researchers that are working in this space, how will the 
scholarship evolve in the next 3 to 5 years? What data tools 
are available, and then I know you're going to want to talk a 
little bit about Government activity you'd like to see to make 
access to the data easier as well.
    But I'd like to just understand what evolution in the tools 
should we expect?
    Ms. Price. I think increasingly moving to that online space 
of being able to take that data to estimate situations of 
trafficking and partnering with our community to be able to 
sort of bottom up identify specific instances. In terms of how 
it's changing, there's a lot of discussion about it potentially 
changing to a dark web based process.
    But at least when it comes to sex trafficking and the 
commercial sex market, we do tend to see that they need to be 
able to advertise to reach the broader market in some way. And 
so in a way that's a blessing, because its something that's a 
little bit easier to access in some ways. But the academic 
community, I think is increasingly taking advantage of data 
science techniques and computer science techniques partnering 
with places like what we do and some of these other computer 
science based institutions.
    And I think that that is becoming an incredible tool to use 
to be able to talk about prevalence, to be able to look into 
the data and to understand what we're seeing. So I do believe 
that that's where we're headed. but that does require access to 
partnerships.
    We have been really lucky to be able to build that here 
locally, because the Nebraska response to trafficking has been 
extremely collaborative. And they've definitely seen the value 
of bringing in research and building that data infrastructure. 
So we've been lucky to have that sort of partnership. But 
that's tough to do in academia that can be really tough to do.
    And so I think that there's a lot we can do to ease that a 
little bit, particularly providing access to more raw data once 
it's no longer an ongoing investigation, or once it's no longer 
really needed. I think that that can go a really long way in 
being able to understand how we can actually pull this all 
together to find specific networks.
    There's a lot of that behind the scenes data that can be 
used to better predict trafficking indicators as an academic 
research community.
    Chairman Sasse. Thank you. This question is for both 
Attorney General and for Senator Slama. In Nebraska we've heard 
from groups like Truckers Against Trafficking, about location 
based marketing of victims in the past. Can we unpack what we 
know about rural places that sometimes would work based on more 
word of mouth networks, because there's a specific geography or 
just unpack more broadly what we know about urban versus rural 
trafficking venues?
    Mr. Peterson. You know, I think in a lot of ways, it's very 
regional across the country what trafficking looks like in 
Houston, Texas, is going to look different than what it looks 
like in central Nebraska. So that's why you have to have good 
law enforcement and good communication.
    One of the things that Crysta's organization provides is a 
heat map that shows us different areas where we might look for 
it. We know there's certain cultures that have certain 
practices and not unique to Nebraska, but because of that 
particular culture being in the area that we can follow what 
their trafficking model looks like. I prefer not to get into 
details and identify those different groups. But those are 
helpful.
    And that's why the network with the Federal authorities is 
very important, because they can follow those same patterns and 
say that this particular group tends to prefer this type of 
business front. And this is what you should probably be looking 
for. And that's been very helpful for us to see if we can buy.
    And in fact, one of our, again, I'm always guarded about 
speaking too much because some things are ongoing. But one of 
the helpful tools we've been able to have is to go back and 
look at business records of some of these operations. Who were 
they--who was a business opened under? What corporate name? 
Where are their financial institutions? Some of that stuff has 
been helpful to say this wasn't just a rare incident in this 
town in Nebraska, but in fact we can see this pattern across 
the State.
    So I think from a technology standpoint though, it's very 
interesting, because the large tech companies are taking a 
tremendous amount of data. That's been in the national news, 
you know, taking location markings every six seconds on an 
Android phone. Some of this technology, financial technology, 
health technology, data that's being stored and kept, frankly 
could be also very helpful to law enforcement. Because what you 
find is with enormous amounts of data gathered on individuals 
you can find pretty clear patterns of behavior.
    The problem is some that these private companies have to 
balance between privacy and working together with law 
enforcement. But we're finding that in the future that may be 
helpful for us to better follow those patterns of trafficking.
    Chairman Sasse. Senator Slama, urban versus rural 
distinctions you've been studying?
    Ms. Slama. Sure just a few that I've ran into, or we see 
typically a difference in tech usage. In rural areas it's a 
little bit more word of mouth, informal, whereas in urban 
settings you have that connection to the technology, to that 
Backpage.com.
    Also there are sometimes differences in payment methods. So 
in our rural areas you have a higher prevalence of meth use in 
the first place, so these women and sometimes young men who are 
being victimized will be paid in drugs, sometimes meth rather 
than cash. Those are the main differences.
    And just in terms of enforcement, our law enforcement 
officials have to take a different approach based on the 
technology differences that you could see in an Omaha versus 
central Nebraska, or a southeast Nebraska trafficking ring.
    Chairman Sasse. And Mr. Murray, I neglected to ask you when 
we were talking at sizing with Mr. Price a little bit ago. 
What's our best estimate of what share of all human trafficking 
is carried out by sophisticated criminal organizations versus 
more localized small units that are probably going to use cash 
or drug payment methodologies. If we were successful in 
implementing more rigorous methodology around financial 
institutions, how much of it do we think is actually reachable? 
What share of that, of the trafficking is moving through large 
structures?
    Mr. Murray. Yeah so as she mentioned, the best source of 
information is really the International Labor Organization. And 
I don't believe that they've broken down small and large in 
that manner. But what they have broken down is how profitable 
each victim is based on where they are in the world. And each 
victim in North America earns traffickers $34,000 a year.
    Chairman Sasse. Wow.
    Mr. Murray. In profit right. So that that's a substantial 
sum of money that's out there. And, you know, I really think 
that what's called for here, and what's really important here, 
is really looking at the systemic financial transparency issues 
that we have, and working those to better equip law enforcement 
and also better equip OFAC. Because if law enforcement is in a 
position where it is struggling to detect the largest 
traffickers, to disrupt the largest trafficking networks, 
OFAC's also going to struggle because OFAC's process is an 
evidence-based process. And when they put somebody on the list, 
they have to be prepared to defend that designation in court.
    Mr. Peterson. Senator if I might interrupt?
    Chairman Sasse. Please do.
    Mr. Peterson. I almost hate to--one of the challenges when 
you talk about this topic, is to actually explain the 
profitability of the business model. I'd almost asked the media 
not to release that figure of $34,000, because there are 
numerous people who, if they saw that would be incentivized to 
look around where they could develop their own network.
    And so it's always difficult to talk about this, it's 
difficult to say what our challenges are, because then they 
exploit our challenges. Some of them are pretty apparent. But 
the profitability one is always one that we try not to talk 
about just because we don't want to encourage anyone to think 
that this might be some type of a business enterprise that 
they'd be interested in.
    Chairman Sasse. Thank you. I'd like to do a final round 
that is essentially some of your biggest asks for policymakers. 
What should the policymaking community know, both executive 
legislative, but also Federal versus State and local and inside 
interagency, inside Nebraska, as well. It would be useful to 
have policy asks and obviously there's the age old if you had a 
marginal dollar, where would you spend it if we were investing 
more in the space? A lot of what we need is statute and we need 
consciousness raising and we need better partnerships, but also 
at the level of financial resourcing. What would we ask for? 
And General Peterson I'll begin with you.
    Mr. Peterson. Thank you Senator. What I would say is all 
law enforcement agencies, we have a little bit of model what 
this was like before. Because when the Federal authorities and 
State combined to make a real focus on child pornography and 
child sexual assault victims you saw a lot of law enforcement 
agencies step forward in combination with Federal authorities 
and develop better scanning techniques on child pornography.
    What happened over a period of time and some of that 
funding went away. It's very labor intensive to have a law 
enforcement officer watching the screens for child pornography.
    In the same vein, I think our biggest challenge now, you 
know, 15 years since that initiative, is that now I find that 
one of the greatest concerns is the technology involved with 
the dark web and the inability of local law enforcement 
agencies to have the money to actually go that direction.
    It almost feels without the Federal authorities help, and I 
know it's a challenge for them too. But I think as technology 
advances, more and more traffickers are going to be comfortable 
going to the internet.
    And Senator Slama made a good point that some of them 
can't, they're not that sophisticated, they're going to 
continue to be the low level operations. But I think more--if 
they find it profitable, they're going to start going there so 
that they can have a greater sense of confidentiality.
    So I think working in the future with both Federal 
authorities, the FBI, Homeland Security and developing better 
abilities to scan the dark web and see where trafficking may 
take place. And on the other end of that ask would be to 
working closely with financial institutions, with 
cryptocurrency and other ways that we can track it.
    Those would be two ways I think to get the larger 
operators. We're going to continue on a local level just to use 
some of our standard law enforcement techniques, word of mouth, 
sting operations, and things of that nature. And some of the 
other data that we're able to get from some of these lower 
operations that would be operating on the internet.
    Chairman Sasse. Thank you. Senator.
    Ms. Slama. On my end I think Nebraska has done a great job 
of changing the mindset, changing the narrative when it comes 
to trafficking. And I'd like to see the narrative change 
towards that positive end nationwide. The Feds can obviously 
take steps towards that. There are some States that are lagging 
behind when it comes to changing the narrative behind child 
prostitution, to being child trafficking victims. On the 
Federal, State, and local level, it'd be great to see better 
resources for recovery for victims, and better toolkits for 
groups that may interact with the victims.
    A lot of these initiatives are started at a grassroots 
level, it would be nice to have some of those toolkit's come 
from the top down, and have those be distributed nationwide, 
rather than seeing in Nebraska, we're making some positive 
efforts when it comes to toolkit's for law enforcement 
officers, health care providers, and other groups. But I'd like 
to see that spread nationwide.
    Chairman Sasse. Thank you. Ms. Price.
    Ms. Price. I think that a lot of stakeholders have 
identified the need for more systemic collaboration information 
sharing between financial institutions, law enforcement, and 
researchers. Particularly when it comes to pulling in open 
source data.
    I think this is a challenge, information sharing is always 
a challenge. But it is something that we can overcome through 
our partnerships. And one thing that was mentioned by some of 
our partners was the potential for a sort of national center 
that can help integrate all of that information and can help 
build the public-private partnership processes that can ease 
all of that.
    I think that at the end of the day it comes down to pulling 
together these different types of information. And so to your 
point with the toolkit's, one of the things that our State task 
force has done is develop a screening process. And it's really 
intended to be a systemic sort of screening process. We took 
about 3 years to develop it.
    The idea being that many different industries can notice 
different red flags. Having that come together in some sort of 
an evidence-based way to be able to connect them to services. 
And then later, worry about what that may mean for whether you 
can get any sort of cooperation for law enforcement.
    So I would like to see that be adopted across the State. We 
are very excited that some of our major Government agencies are 
now going to be adopting that process. And using this software 
that helps facilitate that. But helping to facilitate a lot of 
the law enforcement and open source data and financial data to 
answer a lot of the questions of how that would actually work, 
would go a very long way in sustaining a lot of these efforts 
that are currently happening.
    Chairman Sasse. Thank you and thank you for the tutorials 
you've given my office on this too. You're the main input for 
us to understanding the uses of a lot of that data. Mr. Murray.
    Mr. Murray. Thank you. So I have two recommendations. My 
first would be with respect to company formation. As we 
discussed and as far as the funding to accomplish that, because 
it will require money for consent to implement that. So the 
information can be collected easily and so that it can be 
shared widely with the people who can use it to disrupt human 
trafficking networks.
    The second is I think we need to do a better job of keeping 
up with evolutions and payments. I think that we're at risk of 
the Bank Secrecy Act falling behind and falling behind in 
critical ways. This isn't good for investigators. And this 
isn't good for industry either.
    There are a number of financial services providers, a 
number of FinTech's in this country, who are really shoehorned 
into regulatory definitions that don't make sense for them. And 
it's just--it's not surprising they don't make sense for them, 
because you know they're working against definitions that were 
written before there was a consumer internet.
    So here I would recommend that a task force be set up that 
includes the Executive Branch, the Legislative Branch, and 
industry, to really think about how we should define this term 
``financial institution''. And that how we should make sure 
that financial services are well governed by the private sector 
and well regulated by the public sector. Thank you.
    Chairman Sasse. Thank you and thank you for flagging the 
proliferation of the different digital financial networks as 
well, because that's one of the topics that I'm sure my team 
and I and the Senate Banking Committee are going to continue 
being educated on, in future hearings in this space.
    We were also fortunate to have another witness that we had 
invited who was unable to attend. But I have to do housekeeping 
here to formally submit for the record the testimony of Dr. 
Louise Shelley who is the Omar L. and Nancy Hurst Endowed 
Chair, the Director of Terrorism, Transnational Crime, and 
Corruption Center at the School of Policy and Government at 
George Mason University.
    Unfortunately, she could not attend today, but she did 
prepare formal remarks as well. And we would like to take her 
testimony which covers how human trafficking finances interact 
with the economy in underground banking, money laundering, and 
real estate and cash movement. We want to also put that into 
the record. So by unanimous consent, I do submit that to the 
record.
    That formally concludes the questioning for today's 
hearing. But for other Senators who are Members of the U.S. 
Senate Banking Committee who wish to submit questions to the 
record, for any of you those questions will be due by Tuesday, 
September 17th. And we ask that the witnesses would reply to 
any of those questions and my team will be happy to try to 
facilitate that process with you for questions that come in 
from other Senators.
    And again, we'd like to thank all four of you for sharing 
your expertise and thoughts and research with us today. And for 
your really important work trying to fight against this evil. 
So thank you for being here and thank you for your work. This 
hearing is adjourned.
    [Whereupon, at 3:08 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                 PREPARED STATEMENT OF DOUGLAS PETERSON
                       Nebraska Attorney General
                           September 3, 2019
    Good afternoon, Chairman Ben Sasse, Ranking Member Mark Warner, and 
distinguished Members of the National Security and International Trade 
and Finance Subcommittee. It is a privilege and an honor to speak 
before this Committee. I want to start by thanking the Committee for 
its focus today on this important topic of human trafficking.
    Nebraska may not be the first place that comes to mind when one 
thinks of forced labor or sex trafficking. As I travel the State, I 
have noticed that some Nebraskans are initially a little skeptical 
about the scope of the human trafficking problem. However, once we are 
convinced it happens here, now--in our State and on our watch--there is 
no shortage of outrage or of dedication to end it.
    We are now 4 years into our formal statewide effort to accomplish 
our three-fold goal:

  1.  To help the victims and survivors,

  2.  To stop the traffickers, and

  3.  To end the market.

    Senator Sasse has asked me to highlight this work in Nebraska and I 
am happy to do it. I am proud of what we have done, though there is a 
lot more we need to do before we can begin to claim success.
    The first human trafficking law in the country, the Trafficking 
Victims Protection Act, was passed by the U.S. Congress in 2000. 
Nebraska passed its first law against it in 2006. It was a good start, 
but like its Federal counterpart, it needed strengthening. Therefore, 
in 2015 the State legislature amended the law to increase both the 
penalties and the scope of those to be held responsible. Two years ago, 
Nebraska made more changes. It again increased the penalties, beyond 
the Federal penalties in some cases. The Unicameral followed Congress' 
lead in explicitly including buyers with sellers in the category of 
``human traffickers.'' The law also clarified that a trafficker cannot 
get away with buying or selling minors by claiming he did not know the 
victim's age. Last year, Nebraska Legislature passed the most 
comprehensive record relief law in the Nation, according to Polaris, 
the organization that runs the national human trafficking hotline. It 
gave Nebraska a B for its law providing trafficking victims a way to 
clear their record when the ``crimes'' committed were actually the 
result of their exploitation. It was the only State to get a grade 
above a C. Shared Hope International also rates each State on its 
legislative framework to address the commercial sexual exploitation of 
children. Nebraska went from an F to a B in 5 years. This past year the 
State legislature enhanced our abilities to investigate trafficking by 
authorizing wiretaps for human trafficking investigations.
    These laws--Federal and State--are only as good as those who use 
them. Nebraska is blessed with dedicated and focused public servants, 
eager to use the law to address human trafficking. In 2010 the FBI-led 
Omaha Child Exploitation Task Force was formed and to this day serves 
the greater Omaha area with distinction. 2015 saw the formation of the 
statewide initiative, the Nebraska Human Trafficking Task Force 
(NHTTF). It began under a Federal grant from DOJ's Bureau of Justice 
Assistance--the ``Enhanced Collaborative Model'' grant. There have been 
many of these across the country, always awarded to a partnership of a 
law enforcement agency and a service provider organization. NHTTF was 
among the first, however, to apply this grant, not to a metropolis, but 
to a geographically large State with a diffused population.
    Organizationally, NHTTF divided the State into five regions. While 
we develop statewide protocols and tools, the work on the ground is 
done by these regional teams. This work includes investigating leads, 
confronting traffickers, and giving victims a lifeline to a better 
life. These teams meet at least quarterly, more often when needed, such 
as in preparation for a proactive sting. This structure is a 
realization that the team leaders know the local dynamics and know the 
best way to motivate the greatest number to collaborate. They also know 
what events to best target, and whom to include in the operations. 
NHTTF has conducted successful proactive stings in each of the regions. 
These mostly involve law enforcement in two scenarios--(1) posing as 
sellers to draw out those seeking to buy sex from minors; and (2) 
posing as buyers, especially when law enforcement has reason to believe 
a person being offered is underage or coerced.
    NHTTF takes a distinctive approach to these operations. They begin 
with a presumption that someone being provided for commercial sex is a 
victim. This is based on a realization that many ``prostitutes'' were 
coerced or forced into commercial sex, many of them while minors. It is 
also true that sex trafficking victims very rarely self-identify as 
victims. This presumption that the person is a victim is rebuttable, 
but it is the starting premise, which is a change in the traditional 
law enforcement approach regarding someone selling sex. Among other 
reasons to do this, a victim is much more likely to help us find and 
stop a trafficker if law enforcement consistently treats this victim as 
a citizen to protect rather than as a suspect to arrest.
    Another key aspect to the momentum in Nebraska is the training and 
awareness efforts. When it comes to human trafficking, raising 
awareness is critical to our success. Sometimes there are precious few 
windows of opportunity when a trafficking victim is in the public view. 
It is vital the general public--and especially public servants--get 
informed and keep an eye out for signs. The first step in stopping it 
begins when someone sees where and when it is happening.
    So, NHTTF and its partners have done a great deal of trainings. 
Much of it has been for the general public--talks in Rotary, Kiwanis, 
community, and church groups. However, NHTTF prioritizes focused 
training for strategically located people. Law enforcement is an 
obvious category and NHTTF has trained over 1,000 sworn officers across 
the State. Service providers are another key group. Those who work in 
hospitals, in schools, and in hotels will more frequently encounter 
trafficking victims, so NHTTF has custom-designed training that we 
eagerly provide to them.
    Now, with that background, let me narrow my comments to what is 
most relevant to this Finance Subcommittee--the financial aspects of 
human trafficking. I'll address the profit motive and then hurdles to 
prosecution.
    As this Committee is aware, criminal networks are becoming more 
sophisticated with their ability to hide and move financial assets. 
Human traffickers are no exception. They may even be driving some of 
the innovations. Most of the commercial sex NHTTF encounters in 
Nebraska is still done in cash. Often this cash is eventually deposited 
into accounts into traditional financial institutions. Subpoenas from 
bank records and wire transfers have helped investigators uncover 
enterprises as they connect the dots through financial transactions. 
Yet, with all the new ways to hold and transfer finances, the task 
force encounters obstacles to tracing the financial aspect to human 
trafficking.
    Another hurdle is proving the commercial nature of the crime. Of 
course, an element of sex trafficking is that the sex act is 
commercial. To prosecute, the State must establish an exchange of money 
or of something else of value. Traffickers are getting creative, making 
this element harder to prove. NHTTF partners have certainly seen them 
use cash, but also prepaid credit cards, Venmo and PayPal, and 
cryptocurrency. In other cases in Nebraska, the commercial transaction 
has been a purchase of airline tickets, or payment of an extended hotel 
stay, or bond money to get the sex seller's relative out of jail, or 
even the sex buyer registering his car in the sex seller's name. These 
all come with extra difficulties to find and then prove the commercial 
aspect, and to establish the financial connection between seller and 
buyer. While the criminal element is becoming more creative, so too is 
law enforcement. For one, NHTTF has collaborative partnerships with not 
only local traditional banks in our State but also with newer financial 
entities. For example, the task force has received valuable assistance 
from mobile payment service providers. Continued collaboration with 
both traditional and next generation financial service companies is 
critical for law enforcement agencies to obtain information necessary 
for prosecution. Forums such as this are helpful to encourage this type 
of collaboration between law enforcement and the financial services 
sector.
    As the task force moves forward, NHTTF wants to conduct even more 
targeted investigations into the larger but more financially savvy 
trafficking enterprises. To do this successfully, the task force will 
also need to be more sophisticated in its investigations. NHTTF has 
greatly benefited from collaboration with others, such as Homeland 
Security Investigations, the FBI, and HTI Labs, who will also testify 
before you today. The task force is eager to use all the tools at its 
disposal and all the wisdom of its tech-savvy partners to follow the 
money and root out this crime. We aim to make human trafficking in 
Nebraska a high-risk, low-profit proposal.
    Thank you again for your focus on human trafficking and the chance 
to testify here today on what we are doing to address it in our State. 
I am happy to take any questions you might have for me.
                                 ______
                                 
                   PREPARED STATEMENT OF JULIE SLAMA
                    State Senator, State of Nebraska
                           September 3, 2019
    Good afternoon, Mr. Chairman and Members of the National Security 
and International Trade and Finance Subcommittee. My name is Julie 
Slama and I am a State Senator, representing District 1 in the Nebraska 
Legislature. It is an honor to testify on a subject which has become 
one of my priorities in the Legislature--human trafficking.
    Human trafficking is the fastest growing criminal industry 
globally. Human trafficking was made a Federal crime in 2000, and 
Nebraska made it illegal on a State level in 2006. In the years that 
have followed, lawmakers have tried to give law enforcement the tools 
they need to crack down on this horrendous crime. Human trafficking is 
modern day slavery.
    With regards to today's topic of the intersection of human 
trafficking with the finance sector, traffickers or buyers utilize the 
financial services industry to discreetly store money to pay for their 
victims' transportation from town to town, book hotel rooms for their 
victims to perform illicit acts, as well as payments to coordinate such 
acts. Human trafficking is a $150 billion global industry. Traffickers 
utilize banks and other financial institutions to make thousands of 
small transactions and to break up their larger transactions into 
smaller ones over several banks.
    Financial institutions can play a significant role in disrupting 
human trafficking. Some institutions have committed significant energy 
and resources to detect potential financial indicators of human 
trafficking. Red flags to an institution include, but are not limited 
to, a trafficker's lifestyle being inconsistent with stated income, a 
trafficker using a victim's account, carefully structured deposits to 
avoid detection, strange deductions on an employee's paystub, or large 
sums of money transferred to several banks.
    Many traffickers make deposits just under the threshold that would 
trigger an investigation at a bank. At times, deposits are made to 
accounts for ``massage parlors,'' creating a seemingly legitimate 
business and creating a cover for reporting purposes.
    Financial institutions are on the front lines monitoring 
transactions and spending patterns. However, some traffickers avoid 
financial institution altogether and will only make transactions using 
cryptocurrency or prepaid credit cards. With the shutdown of 
Backpack.com and MassageRepublic.com, and because VISA and MasterCard 
refused to process payments from these sites, cryptocurrency has become 
more prominent for its unfettered use. Prepaid credit cards are also 
hard to trace, thereby giving a trafficker a way to use funds without 
being identified.
    Still another way that traffickers avoid scrutiny from financial 
institutions is to force their victims to use their own accounts for 
transactions. When this happens, the financial institution may notice 
red flags such as frequent hotel and gas station payments, or there may 
be a history of unusual domestic travel expenses. In these cases, 
traffickers avoid putting his or her name on the victim's account, 
which ensures that any crime being committed is bared fully by the 
victim, and that the victim is left to pay off the debts of their 
trafficker. Handling funds generated from human trafficking is 
considered money laundering. If money laundering is suspected through 
not only the victim's account, but regular business accounts, a 
financial institution may attempt to go after a trafficker via the 
money-laundering ring. This is a very effective method of obtaining 
justice for the victim.
    Nebraska has taken many steps to combat human trafficking over the 
last several years. Beginning in 2006 when Nebraska made human 
trafficking a crime, there have been several updates to our State 
statutes. Not only has the Nebraska Attorney General created the Human 
Trafficking Task Force (2015), but Nebraska has increased penalties for 
traffickers and buyers, including making prison sentences longer. 
Victims of human trafficking are allowed to sue their traffickers, and 
trafficked children and adults are provided immunity from prosecution. 
Victims of sex trafficking can clear their records of prostitution 
charges and other offenses that are a direct result of them being 
trafficked. Just this year, with LB 519, the Nebraska Legislature 
updated its statutes to provide wiretapping powers to law enforcement 
agencies, extend the statute of limitations for trafficking, and ensure 
that all children who are victims have the same access to resources for 
recovery, regardless of the person who trafficked them.
    On the Federal level, the Trafficking Victims Protection Act of 
2000 was passed in the first positive steps taken to trafficking on the 
Federal level. This Act has been updated four times, most recently in 
2013, to include:

    Establishing a Federal, civil right of action for 
        trafficked victims to sue traffickers

    Adding human trafficking to the list of charges under 
        Racketeering Influenced and Corrupt Organizations Act (RICO)

    Establishing grant programs to State and local law 
        enforcement to combat trafficking

    Expanding efforts to combat trafficking internationally

    Enhancing criminal sanctions against traffickers, and 
        expanded definitions of various types of trafficking

    Establishing and strengthening programs to ensure that U.S. 
        citizens do not purchase products made by victims of human 
        trafficking.

    The Federal Government also established the National Defense 
Authorization Act of 2013 which seeks to limit human trafficking 
associated with Government contractors. Under this Act, Government 
agencies have the ability to terminate, without penalty, any contract 
or grant with any organization that engages in human trafficking. It 
also establishes methods of reporting and investigating possible 
instances of human trafficking associated with any Government contact 
or grant program.
    Human trafficking is a growing industry, and make no mistake about 
it--this form of slavery is not just limited to urban areas. It reaches 
across our country, even to rural Nebraska. We all have a duty to fight 
back against this horrible crime, and our financial institutions can 
take the lead in spotting signs of trafficking.
    I thank you for your time today and for your attention to this 
subject. I'm happy to answer any questions you may have.
                                 ______
                                 
                   PREPARED STATEMENT OF CRYSTA PRICE
   Director of the Human Trafficking Institute, Creighton University
                           September 3, 2019
Challenges and Opportunities in the Identification of Trafficking
    My name is Crysta Price. I am the Founder and CEO of HTI Labs, a 
research center in the heartland, which has its roots in the Human 
Trafficking Initiative at Creighton University. I have been studying 
and working on the issue of trafficking for 7 years, and I have learned 
that sex trafficking is complex.
    The nature of the crime makes it difficult to identify and 
prosecute. Traffickers, of course, have an incentive to hide their 
criminal activities. Additionally, many trafficking victims have 
difficulty coming forward--because they fear prosecution for 
prostitution (a fear traffickers encourage), because their traffickers 
often are intimate partners, leading to the complex victim-offender 
relationships that many domestic violence victims experience, or 
because of the trauma they have experienced. The hidden nature of the 
crime is the reason why trafficking estimates are often inconsistent or 
inaccurate. As an academic community, we do not know the scope of the 
problem. Furthermore, most conclusions about trafficking are based on a 
small portion of survivors who have been able to come forward.
    We recently hosted the first-ever international conference 
specifically for human trafficking research. This gathering brought 
together the best scholars working on this issue from over 19 countries 
and technology companies working to leverage online commercial sex 
content for law enforcement. The running theme was that there is a 
dearth of intellectual rigor and scientific approaches in 
antitrafficking efforts. You cannot combat something that you do not 
understand, and you cannot understand something without analyzing it or 
seeing it. In short, it all comes down to a lack of reliable data, 
which is caused by the difficulty of identifying trafficking. Well-
developed data infrastructure is required to overcome this challenge.
    In partnership with frontline agencies across the community, this 
is exactly what we work toward: developing the infrastructure for 
ongoing data collection that brings together data from across contexts 
to identify victims and hold perpetrators accountable. We work to:

    Integrate agency systems to link existing data on known 
        cases to reliably track incidents through the criminal justice 
        system. Currently this data includes domestic violence 
        incidents, but as enforcement actions against trafficking 
        become more common, we will work to include those as well. This 
        data is critical for understanding overlaps between domestic 
        violence and human trafficking and for assessing risk so that 
        we can intervene appropriately to prevent revictimization.

    Create data that does not yet exist to help identify the 
        hidden victim population. This involves leveraging new sources, 
        such as scraping online content to create leads for law 
        enforcement.

    Develop better community-wide processes for more effective 
        victim identification, response, investigation, and support in 
        order to increase the likelihood that survivors come forward 
        and that we recognize a situation as trafficking when we have 
        the chance to do so. For example, we have developed legislation 
        that allows survivors to clear their record for crimes they 
        were forced by their trafficker to commit. We have also built 
        software with screening tools, automatic reporting, and service 
        resources for survivors.

    These efforts are united by the understanding that it is nearly 
impossible to identify trafficking from one source alone. It 
necessarily requires community partnerships, where financial 
institutions (FIs) play a key role.
Existing Efforts To Identify Human Trafficking in the Financial Sector
    Financial institutions have undertaken praiseworthy efforts to 
develop indicators and red flags to identify trafficking and to share 
these indicators throughout the industry. Here I provide a brief 
overview of some of these actions.

    In 2010, JPMorgan's Financial Intelligence Unit began 
        partnering with the Department of Homeland Security to ``create 
        typologies that could identify financial transactions and 
        certain account attributes that were worth investigating.'' \1\ 
        Essentially, they classified certain geographic locations and 
        types of businesses as higher risk for trafficking based on 
        publicly sourced information. When coupled with certain types 
        of transactions--credit card charges at certain hours of the 
        night, for example--this would trigger a suspicious activity 
        report (SAR) being sent to the U.S. Financial Crimes 
        Enforcement Network (FinCEN).
---------------------------------------------------------------------------
     \1\ Bain, C. Metallidis, E. Shelley, L. (2014, December). 
``Hedging Risk by Combating Human Trafficking: Insights From the 
Private Sector''. Cologny-Geneva, Switzerland: World Economic Forum. 
Retrieved from http://www3.weforum.org/docs/WEF-Human-Trafficking-
Report-2015.pdf.

    The Thomson Reuters Foundation established a Banks Alliance 
        in 2013 in partnership with the Manhattan District Attorney, 
        Cyrus R. Vance, Jr. The following year, they published a set of 
        red-flag indicators that provided the basis for a subsequent 
        FinCEN advisory to financial institutions. \2\ This advisory 
        includes examples of red flags worth investigating, such as a 
        business account without normal payroll expenditures (e.g., 
        wages or payroll tax). \3\
---------------------------------------------------------------------------
     \2\ Thomson Reuters Foundation. (2018, July 19). ``Thomson Reuters 
Foundation Launches Resource To Help Financial Institutions Tackle 
Human Trafficking'' [Press release]. Retrieved from https://
www.trust.org/i/?id=928ac731-8e74-40db-985a-5e5a4464a86b.
     \3\ Financial Crimes Enforcement Network (2014, September 11). 
``Guidance on Recognizing Activity That May Be Associated With Human 
Smuggling and Human Trafficking--Financial Red Flags'' (Report No. FIN-
2014-A008). Washington, DC: U.S. Department of the Treasury. Retrieved 
from http://www.fincen.gov/statutes_regs/guidance/pdf/FIN2014-A008.pdf.

    In 2017, FinCEN announced the addition of human trafficking 
        as a suspicious activity type in the SAR system. \4\ 
        Previously, human trafficking had to be reported by using the 
        ``other'' box, making it difficult to track trends in 
        reporting. According to publicly available SAR statistics, the 
        earliest trafficking-related SAR was filed in July 2018. \5\ 
        Between July and December, there were 177 human trafficking-
        related SARs nationwide and two here in Nebraska. This year, 
        2,119 human trafficking-related SARs have already been filed 
        nationwide as of August 22. Fourteen of these originated in 
        Nebraska. \6\
---------------------------------------------------------------------------
     \4\ Bethencourt, D. (2017, March 20). ``FinCEN Proposal Draws 
Attention to Human Traffickers''. Retrieved from http://
files.acams.org/pdfs/2017/FinCEN--Proposal-Draws-Attention-to-Human-
Traffickers.pdf?-ga=2.20548472.1123867303.1567092469-
735568195.1567001600.
     \5\ Financial Crimes Enforcement Network. (n.d.). ``Suspicious 
Activity Report Statistics'' (SAR stats). Retrieved from https://
www.fincen.gov/reports/sarstats.
     \6\ Ibid.

    Building on the original Banks Alliance, in 2017 Thomson 
        Reuters Foundation created a series of regional 
        multistakeholder working groups that support financial 
        institutions to fight human trafficking using their data. Each 
        regional Banks Alliance working group is dedicated to mapping 
        the financial footprint of human trafficking in the banking 
        system and developing red-flag indicators of suspicious 
        activity, tailored to the region. \7\
---------------------------------------------------------------------------
     \7\ Thomson Reuters Foundation. (2018, July 19). ``Thomson Reuters 
Foundation Launches Resource To Help Financial Institutions Tackle 
Human Trafficking'' [Press release]. Retrieved from https://
www.trust.org/i/?id=928ac731-8e74-40db-985a-5e5a4464a86b.

    There is some evidence that the red-flag approaches which have 
dominated the financial industry's response to trafficking are matching 
some on-the-ground experiences. For example, Polaris surveyed 99 
trafficking survivors who had interacted with the financial system 
during their victimization and asked them whether they believed 
FinCEN's indicators of human trafficking occurred during their 
victimization. \8\ A substantial number of victims felt their 
traffickers acted in a way that corresponded with a red flag. Fifty-
seven percent of respondents felt their traffickers tried to conceal 
income or its sources. Forty-five percent of respondents felt their 
traffickers' lifestyles were inconsistent with their stated incomes. 
And 28 percent of victims reported being escorted to the bank. \9\ In 
addition, the growth of human trafficking-related SARs reports 
indicates that financial institutions are observing red flags in their 
data. However, while the red flag approach may reveal a subset of 
instances of trafficking, it likely misses many others. Finding these 
missed instances requires shifting from static red flags to active, 
ongoing information sharing between financial institutions, data 
scientists and social scientists who can uncover trafficking, and law 
enforcement officials who can investigate it.
---------------------------------------------------------------------------
     \8\ Anthony, B. (2018, July). ``On-Ramps, Intersections, and Exit 
Routes: A Roadmap for Systems and Industries To Prevent and Disrupt 
Human Trafficking''. Washington, DC: Polaris Project. Retrieved from 
https://polarisproject.org/sites/default/files/A-Roadmap-for-Systems-
and-Industries-to-Prevent-and-Disrupt-Human-Trafficking-Financial-
Industry.pdf.
     \9\ Ibid, 23.
---------------------------------------------------------------------------
Limitations to the Red Flag Approach With Financial Data Alone
    It is exceptionally difficult to identify trafficking from 
financial data and general trafficking indicators for at least three 
reasons. First, traffickers' financial behaviors may be very similar to 
those laundering other illicit gains. For example, in the previously 
mentioned Polaris study, 57 percent of the survivor sample felt their 
traffickers tried to conceal income. This raises the question of how 
many people who have tried to conceal income are not traffickers.
    Second, the crime of trafficking is defined by elements of force, 
fraud, or coercion which can be difficult to determine from financial 
data alone. Even if a financial institution identifies transactions 
associated with commercial sex, that does not necessarily indicate the 
person selling sex meets the legal definition of a sex trafficking 
victim. The information necessary to establish trafficking comes from 
thorough investigations that involve nonfinancial sources.
    Third, the commercial sex market in general and specific 
trafficking organizations in particular have shown themselves to be 
extremely adaptable in the face of attempts to limit their activity by 
the financial sector. A few examples illustrate this point.
    The first example comes from an investigation we assisted in 
involving a nationwide trafficking network. I discuss this 
investigation in more detail later, but one element of it speaks to the 
adaptability of traffickers. This particular organization had bank 
accounts flagged as suspicious and shut down by financial institutions. 
The traffickers continued their operations and simply shifted to using 
Western Union transfers rather than traditional bank accounts.
    The second example comes from the history of the broader commercial 
sex industry. The now-shuttered website Backpage.com, which was similar 
in appearance to Craigslist, once accounted for 80 percent of all 
online commercial sex advertising. \10\ While the website was meant to 
only advertise adult escorts, Backpage itself turned in over 400 
potential minors every month, and 71 percent of the child sex 
trafficking reports received by National Center for Missing and 
Exploited Children (NCMEC) involved ads posted on the site.\11\ \12\ 
Some financial institutions, such as PayPal and First National Bank, 
therefore attempted to flag transactions to Backpage as a highly 
relevant risk indicator. In 2015, MasterCard and Visa ceased processing 
credit card transactions for the website. Backpage responded in two 
ways. First, it opened up a period of free advertising, which caused 
online advertising for commercial sex to skyrocket. \13\ More 
importantly, Backpage assisted customers in transitioning to 
alternative forms of payment. As a result, the industry started using 
Bitcoin and cash, making the transactions far more difficult to trace. 
These examples demonstrate that anti-trafficking efforts must be as 
adaptable as criminal trafficking networks.
---------------------------------------------------------------------------
     \10\ AIMGroup. (2013, July 10). ``Online Prostitution-Ad Revenue 
Crosses Craigslist Benchmark'' [Press release]. Retrieved from https://
aimgroup.com/2013/07/10/online-prostitution-ad-revenue-crosses-
craigslist-benchmark/.
     \11\ McPherson, J. (2011, September 16). ``Backpage.com's Ongoing 
Failure To Effectively Limit Prostitution and Sexual Trafficking 
Activity on Its Website'' [Open letter]. Retrieved from https://
atg.sd.gov/docs/Joint-AG-Letter-to-Backpage.com.pdf.
     \12\ Shesgreen, D. (2015, November 19). ``Senators Threaten Sex Ad 
Website CEO With Contempt''. USA Today. Retrieved from https://
www.usatoday.com/story/news/politics/2015/11/19/senators-threaten-sex-
ad-website-ceo-contempt/76066726/.
     \13\ HTI Labs' automated daily collection of Backpage ads showed a 
dramatic spike in the number of ads posted during this period. Evidence 
indicates that some in the industry took advantage of the free ads to 
test new markets by posting ads in new locations.
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Data-Sharing Partnerships To Combat Trafficking
    Efforts to detect human trafficking within the financial sector are 
laudable. They demonstrate the commitment of many within the industry 
to helping victims and limiting the ability of traffickers to profit 
off their victimizations. However, the most effective response to 
trafficking requires networked data across multiple sources coming 
together to predict whether trafficking is taking place, and then 
receiving an actual answer so that algorithms can be updated. 
Algorithms require feedback to improve, and the unfortunate reality is 
that while financial institutions may attempt to detect and report 
trafficking via a SAR, it is exceedingly unlikely that they will ever 
know if the situation actually constituted trafficking. To build even 
more effective efforts, we must encourage ongoing and sustainable data 
sharing between antitrafficking actors from many sectors (including the 
financial sector, law enforcement, and research centers). This will 
allow for thorough investigations that stop trafficking as opposed to 
merely displacing it, identify victims and connect them with needed 
resources, and effectively respond to adaptations by traffickers.
    Financial data must be linked directly to ongoing and actionable 
data reflecting the risky industries that trafficking takes place 
within. However, generating data on these broader industries is quite 
complex--it involves web scraping and artificial intelligence, neither 
of which is a small investment. Partnerships between financial 
institutions and entities already doing this work such as Memex, Thorn, 
or HTI Labs are therefore the most feasible way to connect financial 
and commercial sex industry data.
    At HTI Labs we have engaged in serious conversations with local 
financial institutions about accessing our data to use as an additional 
red flag. Issues for consideration have included:

    Volume: How many accounts would our data link to? Would the 
        financial institution have the internal capacity to investigate 
        such a rapid increase in accounts being flagged? Would law 
        enforcement have the capacity to investigate such a rapid 
        increase in SARs?

    Effect: Would the increase in investigations actually lead 
        to an increase in prosecutable cases? Put another way, would 
        this data sharing create good leads for human trafficking? 
        Would it help distinguish voluntary commercial sex activity 
        from trafficking?

    FI Response: Would the financial institution respond by 
        closing the accounts, and if so on what timeline? If law 
        enforcement quickly determines that a certain account is 
        connected with a prosecutable trafficking case, then they will 
        often ask the financial institution to keep the account open 
        throughout the course of the investigation. However, if law 
        enforcement needs more time to determine whether trafficking is 
        occurring, from an investigatory standpoint it could be ideal 
        for accounts to remain open. If the volume of such accounts is 
        high, this would constitute a major shift in the way that FIs 
        usually handle SARs.

    Given the uncertainty, we recently decided to do a controlled 
experiment with Homeland Security Investigations (HSI) and PayPal. We 
provided high-risk leads to our HSI partners, who then passed the 
information to PayPal to determine the degree to which our data could 
be linked to their financial data to identify individuals in the 
network. While this pilot project is still ongoing, many of the leads 
were able to be linked to PayPal accounts. This pilot test illustrates 
the promise of greater cooperation and information sharing between law 
enforcement, financial institutions, and research centers.
Collaborative Strategies To Identify Human Trafficking
    Information sharing across Government and other sectors is not a 
new challenge. Overcoming this challenge requires partnerships, 
sustained focus, and the resources to build the infrastructure that 
makes it possible. Over the past few years, our community has been 
piloting a vision here in the heartland showcasing exactly how it can 
work. As a community, we have leveraged research and technology in 
partnership with law enforcement, nonprofits, and financial 
institutions to identify and respond to trafficking in a smarter, more 
sustainable way.
    We take a two-pronged approach to understanding trafficking. On one 
hand, we conduct basic research to map as much as possible of the 
larger commercial sex market. On the other hand, we work with law 
enforcement and service providers to identify specific instances of 
trafficking within that industry. This allows us to estimate and study 
the portion of commercial sex that involves trafficking. The more 
feedback we get from our community partners, the better the estimates 
and the research become.
    We identify traffickers by first identifying sex providers who 
might be trafficked and then investigating their potential traffickers. 
We do it this way because traffickers are far less visible than sex 
providers--sex providers need to advertise or communicate with buyers 
in some way and therefore cannot be completely underground. We use web 
crawling to automatically detect and scrape this communication at scale 
and then we use data science to generate accurate reflections of 
individual sex providers and their networks in the industry.
    To assess the likelihood that a given sex provider might be 
trafficked, we engineer information that helps us predict their market 
segment, because trafficking works differently in different segments of 
the market. For example, in the escort service segment, recruitment 
tends to involve fraudulent job offers or feigned romantic interest, 
and most victims are U.S. citizen women and girls. On the other hand, 
in illicit massage parlor networks, most victims are women in their 
thirties to fifties from East Asian countries who are either recruited 
by larger operators in their home country or who are immigrants with 
limited English looking for work in the U.S. \14\ We also look for 
signs of exploitation, whether through age, nationality, or having a 
facilitator or manager. This is another reason we need more than red 
flags; indicators of risk differ depending on traffickers' business 
models. Put another way, there are almost no shared risk factors across 
all of these sex trafficking cases that could serve as a useful filter. 
Based on this incomplete online information, we predict trafficking 
risk and push the high-risk leads to our law enforcement partners via 
an online platform that we developed.
---------------------------------------------------------------------------
     \14\ Polaris. (2017, March). ``The Typology of Modern Slavery: 
Defining Sex and Labor Trafficking in the United States''. Washington, 
DC: Polaris. Retrieved from https://polarisproject.org/sites/default/
files/Polaris-Typology-of-Modern-Slavery.pdf.
---------------------------------------------------------------------------
    Next, we facilitate turning those leads into investigations and 
ultimately prosecutions. Investigations center on the questions of 
``who is this sex provider in real life'' and ``who is the common 
person between the providers in the network?'' Most importantly, we 
ask, ``is this situation trafficking?'' To answer these questions, our 
community seeks to avoid the classic tactic of engaging in sting 
operations, because these operations place a burden on victims to 
instantly trust law enforcement more than they fear their traffickers. 
When victims do not immediately disclose their status, sting operations 
can result in victims being arrested for crimes they were forced to 
commit. Instead, we conduct long-term data-driven investigations, 
shifting the focus away from relying so heavily on victims.
    Thorough investigations involving offline sources of data are 
critical to understanding when a situation is more likely to be 
trafficking than voluntary commercial sex activity. For example, 
classic ``push'' factors to trafficking include a history of childhood 
sexual abuse, domestic violence, or system involvement. The utility of 
this information has informed our strategy in working with our law 
enforcement and service providers to make use of this existing 
information and leverage it at scale to dramatically improve the 
accuracy of our trafficking algorithm, creating better leads.
    This whole process is characterized by information exchange 
throughout the investigation. Afterward, we debrief with partners in 
law enforcement and among service providers to make sure we learn as 
much as possible to improve not only our algorithms, but also our 
overall response. The examples detailed below demonstrate the 
importance of integrating our data with data from other sources.
Case Study #1: Dismantling an International Asian Network and Using 
        Financial Data
    The utility of financial data is highlighted by our largest case to 
date, which involved the unmasking of an international Asian commercial 
sex network.
    We provided an initial lead to HSI of a large-scale network 
trafficking young Asian women across the country, which included a 
heavy presence in Omaha. Many of these women did not speak English and 
were required to see more than 10 sex buyers in a single day.
    The lead resulted in the dismantling of the two largest domestic 
and international sex trafficking organizations identified in the U.S. 
to date. These investigations resulted in numerous arrests of 
organizational leaders and the seizure of over three million dollars of 
illicit funds. Most importantly, many victims have been offered 
services to rebuild their lives.
    Working off of the lead we provided, law enforcement was able to 
find a receipt for a bank transaction, which led to the identification 
of an email address. Sharing this email address with our research 
center allowed us to identify additional ads that belonged to the 
network. These additional ads revealed just how widespread the network 
was as well as potential suspects. HSI used this information to 
determine which ads to subpoena, and in turn the subpoenaed Backpage 
data allowed us to understand the organizational structure of the 
network.
    In this network, women were advertised in nearly every State across 
the country, but the ads were all posted from only three locations. 
This fact revealed that the network was operating out of call centers 
that dispatched the victims. When HSI compared our data with account 
data from financial institutions, they were able to map movement and 
further uncover the ring leaders. In so doing, they discovered that one 
of the dispatch center locations belonged to the potential suspect, who 
regularly received deposits from 30 different financial accounts.
    Further investigative work by HSI revealed that sex buyers 
generally paid cash directly to sex providers, who then paid the 
dispatcher a certain percentage. As previously mentioned, this network 
switched from using wire transfers directly into bank accounts to using 
Western Union. The sex providers also used WeChat to send money to 
family in China via a bank account to bank account transaction. Beyond 
proof of concept for the collaborative model, this work greatly 
advanced our collective understanding of the sex trafficking industry.
Case Study #2: The Need for More Information To Investigate a Russian 
        Organization
    While financial data has not always found its way into our efforts, 
it would have been useful in several cases. In one such case, we 
brought to law enforcement's attention a lead on a Russian sex provider 
that we believed to be trafficked. On the same day we provided the 
lead, law enforcement recovered the sex provider and determined that 
she had been trafficked by an international organization based in 
Russia.
    The organization sent women to the U.S. on visitor visas. For the 
90 days covered by the visas, they dispatched the women from city to 
city, to include Omaha, on preplanned ``dates.'' The organization 
falsely promised the women autonomy and the ability to keep all of 
their earnings. In reality, the organization took nearly all of their 
earnings and forced them to do far more than they agreed to. While the 
traffickers worked hard to ensure that the women did not have contact 
with one another, the young woman identified in our lead stated that 
the organization had threatened that the victims' families would be 
informed about their engagement in commercial sex if they did not show 
up for a ``date.''
    This is a case that likely would have benefited from further 
investigation that incorporated financial data. Without financial data 
or a cooperative witness, local law enforcement was unable to identify 
the individual perpetrators and move forward with the case.
Case Study #3: Connecting the Dots To Identify a Legally Low-
        Functioning Victim
    Apart from financial data, the integration of data from several 
sources has almost always proven important. The identification and 
recovery of a legally low-functioning victim of trafficking highlight 
the value of bringing together Government data from several different 
sources with open-source data.
    In this case, we noticed one woman who was frequently identified in 
``two-girl'' ads with a second woman. Pursuing the possibility that 
either of them might be trafficking victims, we found that sex buyers 
had reviewed the primary victim as ``slow,'' ``sleepy,'' or ``shy.''
    In response to our lead, law enforcement set up an operation to 
provide outreach, where they responded to the first woman's online 
advertisement and set up a ``date'' with her. While waiting for her to 
show up, we worked with law enforcement to investigate the lead more 
deeply. We discovered that 6 months earlier, an Adult Protective 
Services investigation determined that she was very low functioning and 
that she lived with a man, her trafficker, who sold her for sex and 
from whom she stated she was unable to escape.
    Other law enforcement records indicated the man was a repeat 
perpetrator of domestic violence against both of the women advertised 
in the two-girl ads in our database. A report on the second woman in 
the two-girl special revealed that she had been in the process of 
disclosing that she was being trafficked during a visit to the ER when 
the trafficker appeared. The victim instantly shut down and the two of 
them left.
    Because of this contextual information, when the first woman showed 
up to the law enforcement operation with a script from her trafficker 
telling her what to say and do for her ``date,'' she was immediately 
connected to services.
Case Study #4: The Role of Community Partnerships in Combating a Large-
        Scale Trafficking Network Operating out of Omaha
    The most long-term investigation we have been involved with to date 
is one that could not have occurred without trusting relationships with 
local service providers.
    We uncovered a large-scale trafficking network in the heart of 
Omaha. After developing an initial lead for law enforcement, a local 
service provider reached out to ask if I would be willing to sit down 
with a trafficking victim who wanted to see if there was anything I 
could do to leverage her information and turn it into a lead for law 
enforcement to investigate. It turned out that the survivor was one of 
the key victims in this large-scale network we had already uncovered. 
She was sold from trafficker to trafficker and was only able to run 
from the situation when her trafficker was arrested for domestic 
violence after nearly beating her to death. Even then, he sent sex 
buyers to the shelter she was staying at, causing her to move out of 
the State. Her disclosure helped propel our lead to the forefront of 
law enforcement's attention.
    After more than 2 years of providing investigative support on this 
case, it is still ongoing and involves over 40 victims and four 
traffickers. Many of the victims have been connected to services but 
are too afraid of their traffickers to cooperate with law enforcement. 
Unfortunately, the shutdown of Backpage.com around this time made the 
case more difficult by making it impossible to prove the veracity of 
digital evidence. Nonetheless, in August, 2019, the first of the 
traffickers pled guilty. Subsequently, the survivor with whom we 
originally spoke felt safe enough to return to Omaha.
Incorporating Financial Data for Stronger Identification of Trafficking
    Our goal is to continue this work at scale in a way that mimics the 
back-and-forth investigative process. Integrating Government and 
financial data with our open-source data would result in more effective 
algorithms. In fact, even modest information sharing would result in 
improved trafficking predictions, because it could help incorporate 
precisely the types of contextual information that are critical to 
distinguishing trafficking from other related situations.
    For example, imagine that four women are regularly sending Jane Doe 
large chunks of money. There are countless explanations for this 
pattern in isolation. But criminal justice data could reveal that Jane 
has a long history of prostitution charges and has been a victim of 
several domestic violence attacks by her boyfriend. Open-source data 
could further show that Jane's boyfriend's phone number is being used 
to advertise five women in commercial sex ads online. With insights 
from these different data sources, it becomes clear that we have 
probably just identified a trafficker and five potential victims. We 
also know that Jane is likely the trafficker's ``bottom,'' an industry 
term referring to a victim forced into being a trafficker's deputy, 
tasked with keeping the other four women ``in line.''
    This full scenario would be nearly impossible for a bank or law 
enforcement to identify on their own. While open-source data and 
algorithms could identify the network as a lead, they would struggle to 
identify the trafficker. Unfortunately, without identifying the 
trafficker, the victim acting as the bottom appears to be the 
perpetrator in the situation. In this example, data integration allows 
the identification of the trafficker and makes the difference between 
an actionable investigation and a dead-end lead. Actionable 
investigations in turn help hold offenders accountable and allow us to 
build stronger future trafficking predictions.
    Many stakeholders have identified the need for better data sharing 
to facilitate the identification of trafficking but have also pointed 
out the significant hurdles to its full implementation. \15\ In our 
experience, long-term, trusting relationships among different 
institutional actors help overcome these hurdles. The goodwill that 
exists across the political spectrum to do something about trafficking 
makes such relationships possible.
---------------------------------------------------------------------------
     \15\ Anthony, B. (2018, July). ``On-Ramps, Intersections, and Exit 
Routes: A Roadmap for Systems and Industries To Prevent and Disrupt 
Human Trafficking''. Washington, DC: Polaris Project. Retrieved from 
https://polarisproject.org/sites/default/files/A-Roadmap-for-Systems-
and-Industries-to-Prevent-and-Disrupt-Human-Trafficking-Financial-
Industry.pdf.
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Recommendations
    I am pleased that the Subcommittee has called this hearing and 
drawn attention to the crucial issues related to human trafficking and 
its intersection with the financial sector. Government actions could 
play a critical role in strengthening the work that is already 
happening.
    Support for public-private investigative partnerships: There are 
several ways the Government can support the public-private partnerships 
that can meaningfully combat trafficking.
    Government efforts can assist entities to overcome hurdles to data 
sharing. A challenge that our partners at HSI face is that there is no 
information-sharing mechanism for investigating trafficking, in 
contrast to drugs and other crimes. This could be addressed by creating 
a national center similar to the National Center for Missing and 
Exploited Children (NCMEC) that can integrate open-source, law 
enforcement and financial data. More modestly, the Government could 
provide guidelines for how to structure public-private partnerships and 
disseminate examples of the data-sharing agreements and memoranda of 
understanding that underlie them. \16\
---------------------------------------------------------------------------
     \16\ For an analogous example in the domain of education research, 
see Shaw, S.H., Lin, V., and Maxwell, K.L. (2018, June). ``Guidelines 
for Developing Data Sharing Agreements To Use State Administrative Data 
for Early Care and Education Research'' (Report No. 2018-67). 
Washington, DC: Office of Planning, Research, and Evaluation, 
``Administration for Children and Families'', U.S. Department of Health 
and Human Services. Retrieved from https://www.acf.hhs.gov/sites/
default/files/opre/guidelines-for-developing-data-sharing-agreements-
508-7-16-18-508.pdf.
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    Even if entities understand how they could establish long-term 
partnerships, actually doing so requires significant effort. Providing 
funds for law enforcement to pursue long-term partnerships with 
researchers and financial institutions can help incentivize and sustain 
the necessary shift.
    Facilitating access to electronic records: Outside of the 
particular realm of the financial system, the Government can help 
facilitate the detection and prosecution of trafficking by (1) easing 
access to past Backpage records and (2) working with other Governments 
to make it easier to access the data of foreign companies that host 
advertisements for commercial sex.

    Accessing Backpage Data in a Post-Backpage Environment: One 
        particular challenge arises from the shutdown of Backpage.com. 
        Two examples from HTI Labs' work highlight the resulting 
        obstacles. First, a multiyear investigation into a large 
        trafficking network resulted in the main perpetrator being 
        charged with Mann Act violations rather than human trafficking 
        because a key piece of evidence proving that he advertised an 
        underage individual was contained in a Backpage ad. Backpage's 
        servers, and all of the data on them, are in the custody of the 
        FBI, which is not responding to many subpoena requests from law 
        enforcement. A streamlined process for accessing the Backpage 
        data could facilitate prosecutions. Outside of the obvious need 
        for prosecuting cases, this database holds the potential for a 
        wealth of actionable information. For example, by analyzing the 
        subpoenaed Backpage data in our collaboration with HSI on the 
        Asian network, we uncovered the organizational structure of the 
        network. The full Backpage database should be available in raw 
        form to law enforcement and their Memorandum of Understanding 
        (MOU) partners.

    Accessing Current Commercial Sex Data in a Post-Backpage 
        Environment: In response to FOSTA/SESTA legislation and the 
        closing of Backpage, many websites currently hosting ads for 
        commercial sex now operate in foreign jurisdictions, increasing 
        the hurdles for law enforcement in obtaining their data. For 
        example, two websites that gained popularity after Backpage's 
        shutdown--List Crawler and Skip the Games--both operate from 
        the Netherlands. The Federal Government could help ameliorate 
        this problem by establishing agreements with relevant 
        Governments for processes to access these data more 
        expeditiously.
                                 ______
                                 
                   PREPARED STATEMENT OF DAVID MURRAY
    Vice President for Product Development and Services, Financial 
                           Integrity Network
                           September 3, 2019
    Thank you, Chairman Sasse and Ranking Member Warner, for convening 
this hearing to discuss human trafficking and its intersection with the 
financial system. And thank you for the invitation to testify. It is an 
honor to be before this Subcommittee. Human trafficking is the most 
heinous form of transnational criminal activity, and we are fortunate 
for your attention to this threat.
    Human trafficking is highly profitable, generating $150.2 billion 
in annual profits as of 2014, according to the International Labour 
Organization, a U.N. agency that brings together Governments, 
employers, and workers in 187 member States. \1\ Developed economies 
are the most profitable for human traffickers, with criminal 
organizations earning more than $34,000 annually in profit from each 
victim in North America. \2\
    Human trafficking interacts extensively with the financial system, 
in contrast to other types of criminal activity, whose touch points are 
usually more discrete. Drug trafficking is principally a cash business, 
and the proceeds of the crime are held as cash well into the money-
laundering cycle. \3\ Fraud typically targets money that is already in 
the financial system through transactions that are designed to appear 
legitimate. \4\ Human traffickers may receive money from buyers either 
in cash or through electronic means, and the transactions that are 
vital to operating their businesses may be small or large. \5\
    As a result, human trafficking has many intersections with the 
financial system. At lower levels of human trafficking organizations, 
human traffickers have used cash, retail payment systems, online 
payment systems, and cryptocurrencies. \6\ At higher levels of human 
trafficking organizations, human traffickers have exploited anonymous 
companies to conceal their activities. \7\
    Federal, State, and local officials have worked with the financial 
industry to disrupt human trafficking organizations and push them out 
of the financial system. \8\ But human trafficking is difficult to 
combat, because the financial transactions associated with human 
trafficking dwell in parts of our financial system where transparency 
may be poor: small payments carried out through retail payment systems, 
online payment systems, and cryptocurrencies, and large payments 
carried out through anonymous companies. \9\
    I make three recommendations to disrupt human trafficking 
organizations by increasing financial transparency:

    Pass legislation that bans anonymous companies. The 
        Improving Laundering Laws and Increasing Comprehensive 
        Information Tracking of Criminal Activity in Shell Holdings 
        (ILLICIT CASH) Act is one legislative initiative under 
        consideration that would ban anonymous companies. \10\

    Strengthen cryptocurrency regulations by creating a new 
        class of financial institution: virtual asset transaction 
        validators. For these essential actors in cryptocurrency 
        transactions, such a regulatory regime would emphasize 
        counterparty financial institution due diligence. The lack of 
        systemwide financial crimes compliance (FCC) governance for 
        some existing cryptocurrencies allows criminals space to 
        operate and makes it difficult for the United States to isolate 
        rogue service providers from the U.S. financial system. \11\

    Improve transparency of retail and other consumer payments. 
        Changes in the payments industry are reducing transparency of 
        retail and other consumer payments throughout the value chain, 
        making it difficult for downstream financial institutions to 
        understand their customers' sources of funds and the illicit 
        finance risk that each customer poses to the financial 
        institution. \12\
Human Trafficking's Intersection With the Financial System
    Nearly three-quarters of human trafficking victims brought to North 
America are trafficked for the purpose of sexual exploitation. \13\ The 
predominant business model for human trafficking therefore requires 
human trafficking organizations to manage three primary funds flows in 
the United States: money for logistics such as transportation and 
lodging, money paid by purchasers of sex to low-level operatives, and 
money transferred from low-level operatives to the larger organization. 
\14\
    Paying for logistics leaves a financial trail. Financial 
transactions may be most readily associated with human trafficking when 
they are carried out by victims and low level operatives, according to 
the Financial Action Task Force (FATF). \15\ Victims have been 
identified when they incurred unusually high lodging, sustenance, or 
transportation charges. \16\ Low-level operatives have been identified 
by connecting them to the purchase of advertisements for prostitution. 
\17\ The amounts paid for lodging, transportation, and advertisements 
tend to be small, well under the $3,000 recordkeeping threshold and the 
$5,000 suspicious activity report (SAR) threshold. Traffickers also are 
now turning to payment tools that allow them to remain anonymous, such 
as prepaid cards and cryptocurrencies, for purchases of advertisements 
and websites. \18\
    Purchasers of sex tend to pay in cash, which means that human 
trafficking for sexual exploitation generates high volumes of cash, 
according to the FATF. \19\ Purchasers of sex may also use 
cryptocurrencies to pay for premium memberships on websites that they 
use to review services. \20\ When human trafficking organizations use 
fronts such as massage parlors, they may accept credit cards. \21\
    At higher levels, human trafficking organizations are sophisticated 
transnational criminal organizations that prey upon vulnerable people. 
\22\ As money moves from lower levels of an organization to higher 
levels of an organization, techniques for moving funds are consistent 
with those employed by other dangerous transnational criminal 
organizations. Human traffickers have used money transmitters, shell 
companies, and unregulated money services businesses to send money 
upstream. \23\ The large profits suggest that human trafficking 
organizations' funds flows may have a strong signal in the 
international financial system, but, according to the FATF, they are 
not readily distinguishable as the proceeds of human trafficking once 
they move upstream. \24\
The U.S. Policy Response
    Federal, State, and local authorities are working closely with the 
financial sector to detect human trafficking networks operating in the 
U.S. financial system. \25\ Visa and MasterCard have banned customers 
whose businesses are at high risk for human trafficking from their 
networks, \26\ as have leading FinTech firms such as PayPal \27\ and 
Stripe. \28\ Iowa-based MetaBank developed a prepaid card monitoring 
effort that enables identification of suspicious activity with 
resulting referrals to law enforcement. \29\
    Regulators have been active in warning financial institutions about 
illicit finance risks related to human trafficking. In 2014, the 
Treasury Department's Financial Crimes Enforcement Network (FinCEN) 
issued guidance to financial institutions that included more than a 
dozen red flags for human trafficking. \30\ In 2018, the FATF issued 
its second report on human trafficking, which also included red flags. 
\31\
    In 2017, FinCEN announced the FinCEN Exchange program. \32\ The 
FinCEN Exchange program is a public-private sector partnership in which 
FinCEN, in close coordination with law enforcement, convenes regular 
briefings with financial institutions to exchange information on 
priority illicit finance threats, including human trafficking. \33\ In 
August 2019, FinCEN announced a new division, the Global Investigations 
Division, focused on ``identifying primary foreign money-laundering 
threats.'' \34\ The new division will be dedicated to strategic use of 
FinCEN's Section 311 authority and to FinCEN's targeted information 
collection authorities. \35\
    Nonetheless, gaps in our financial transparency regime make 
investigating human trafficking difficult for both financial 
institutions and law enforcement. Payments involving human trafficking 
victims and low-level operatives tend to involve small amounts, well 
below the $5,000 SAR threshold, \36\ challenging financial 
institutions' anti- money-laundering (AML) programs, which are geared 
primarily toward detecting larger payments. \37\ At higher levels of 
human trafficking organizations, criminal organizations employ 
sophisticated money-laundering techniques to evade detection, including 
by exploiting anonymous shell companies to conceal their activities. 
\38\ As a result, investigations can be lengthy.
Strengthening Financial Transparency To Combat Human Trafficking
    The heinousness of human trafficking demands a swift response that 
enables financial institutions to prevent financial transactions 
related to human trafficking or to detect them quickly once they have 
occurred. We can better protect our financial system by banning 
anonymous companies, strengthening cryptocurrency regulation, and 
improving transparency of retail and other consumer payments.
Anonymous Companies
    Congress should ban anonymous companies.
    The ILLICIT CASH Act that U.S. Senators Tom Cotton, Mark R. Warner, 
Doug Jones, and Mike Rounds released in June is one of several 
legislative efforts to eliminate the leading vulnerability in the U.S. 
financial transparency regime: anonymous companies. Such companies have 
been a persistent weak spot in our efforts to prevent money laundering 
and disrupt criminal organizations. They were mentioned in the first-
ever National Money Laundering Strategy in 1999 \39\ and highlighted as 
a major vulnerability in the National Money Laundering Risk Assessment 
in 2015 \40\ and again in the National Money Laundering Risk Assessment 
in 2018. \41\
    Anonymous companies may present themselves in one of two forms: 
Anonymous shell companies or anonymous front companies. Shell companies 
are legal entities without active business operations or a physical 
presence. \42\ They often lack employees. \43\ They have some 
legitimate business purposes because they can be formed cheaply and 
have little or no overhead. \44\ But those same characteristics make 
them very attractive for illicit actors.
    Alternatively, anonymous companies may take the form of front 
companies. Front companies have real, licit business operations that 
provide cover for illicit activity. \45\ Front companies' licit 
business operations makes illicit activity even more difficult to 
detect and investigate. \46\
    Regardless of whether they are established as shell companies or 
front companies, anonymous companies are the ultimate utility player in 
a money-laundering operation. Their primary role is to conceal 
criminals' identities. But they can do much more. Anonymous companies 
can conceal relationships among the parties to a transaction, as in the 
case of the Russian Laundromat scandal, \47\ to defeat financial 
institutions' anti- money laundering detection systems. They also can 
conceal sanctions evasion, as in the case of ZTE \48\ or North Korea. 
\49\ And they can hide a politically exposed person's interest in a 
transaction, as seen in the behavior of corrupt officials in Venezuela 
\50\ and throughout the world. \51\
    Human trafficking organizations and other transnational criminal 
organizations have exploited anonymous companies for decades. \52\ In 
many places in the United States, obtaining a library card requires 
more documentation than forming a legal entity. \53\ The ease with 
which anonymous companies can be formed makes identifying criminals 
more difficult, lengthening the time that it takes law enforcement to 
disrupt human trafficking networks if they can disrupt them at all. 
\54\ In 2016, the FATF took the United States to task for failing to 
ensure that accurate ownership information is available for legal 
entities formed in the United States. \55\
Convertible Virtual Currencies
    Congress should create a new class of financial institution under 
the BSA to cover firms involved in convertible virtual currency 
transactions: virtual asset service providers (VASPs), which are firms 
involved in convertible virtual currency transactions. VASPs should 
include cryptocurrency service providers that are already covered by 
the BSA as well as virtual asset services that currently fall outside 
the scope of the BSA.
    A convertible virtual currency is a ``medium of exchange that can 
operate like currency but does not have all the attributes of `real' 
currency.'' \56\ Bitcoin is a convertible virtual currency. Virtual 
assets are a class of financial assets that includes convertible 
virtual currencies. \57\ They have proved vulnerable to criminal 
exploitation. According to one study, illicit Bitcoin transactions are 
on a pace to top $1 billion this year. \58\ Protecting virtual assets 
from illicit finance will become even more important as virtual assets 
become more credible challengers to existing consumer payment tools.
    Virtual assets are vulnerable to illicit finance because they offer 
rapid and irrevocable settlement and the potential for anonymity. 
Importantly, some virtual assets are traded through decentralized 
networks, with no central oversight body. \59\ In other words, there is 
no entity performing a governance function and controlling admission to 
the payment system. In practice, the lack of a central oversight body 
means that anyone can create a VASP and begin facilitating 
transactions. As this Committee considers how best to regulate VASPs, 
it should ensure that when U.S. authorities identify a rogue VASP, they 
can effectively prevent that VASP from exposing the U.S. financial 
system to illicit finance risk, because the trend toward decentralized 
and autonomous systems threatens our ability to control access to the 
U.S. financial system.
    Effectively safeguarding virtual assets requires a regime that 
acknowledges that VASPs are not a unitary class of financial 
institutions and instead recognizes that VASPs play different roles in 
facilitating virtual asset transactions. Some VASPs are currently 
regulated as money transmitters under the BSA. Others are not regulated 
at all. Even for those VASPs currently regulated as money transmitters, 
the regulations are insufficient to protect virtual assets from 
exploitation. VASPs should be regulated based on the particular service 
or services that they provide, with an emphasis on promoting systemwide 
governance to prevent bad actors from establishing VASPs and 
connections to the international financial system.

    Virtual Asset Exchangers: Virtual asset exchangers dealing 
        in convertible virtual currencies are currently regulated as 
        money services businesses (MSBs) under the BSA. Virtual asset 
        exchangers exchange fiat currencies for virtual assets and are 
        the gateways for people and businesses who seek to transact in 
        virtual assets. Virtual asset exchangers are required to keep 
        records, maintain effective AML programs, and file SARs. They 
        also should be required to establish risk-based customer 
        identification programs and to conduct customer due diligence 
        (CDD), because the transaction-based customer identification 
        requirements currently in place under the existing MSB regime 
        are insufficient to mitigate risk for account-based products 
        and services.

    Virtual Asset Issuers: The initial issuance of virtual 
        assets, including the initial offering of a virtual coin, is 
        money transmission under the BSA when an asset issuer sells a 
        convertible virtual currency. \60\ Virtual asset issuers should 
        be subject to the same requirements as virtual asset 
        exchangers, with a special emphasis on conducting enhanced due 
        diligence on virtual asset buyers that are financial 
        institutions, because virtual asset issuers are well positioned 
        to play a strong governance role when creating new virtual 
        assets.

    Virtual Asset Custody Services: Virtual asset custody 
        services hold funds on behalf of customers and are currently 
        MSBs under the BSA. \61\ Virtual asset custody services are 
        required to keep records, maintain effective AML programs, and 
        file SARs. They also should be required to establish risk-based 
        customer identification programs and to conduct CDD, because 
        the transaction-based customer identification requirements 
        currently in place under the existing MSB regime are 
        insufficient to mitigate risk for account-based products and 
        services.

    Virtual Asset Transaction Validators: Individuals and 
        entities that validate virtual asset transactions are as 
        critical to the success of virtual assets as credit card system 
        operators are to credit cards because without transaction 
        validation, the custody of a virtual asset cannot be assigned 
        from one person to another. Virtual asset transaction 
        validation--known alternatively as mining \62\--is not 
        currently regulated under the BSA, \63\ but virtual asset 
        transaction validators could be gatekeepers for virtual asset 
        systems if they are brought into the scope of the BSA. At 
        minimum, virtual asset transaction validators should be 
        required to govern participation in their validation systems, 
        with well-designed programs for vetting the issuers, 
        exchangers, and custodians that they serve.

    Noncustodial Virtual Asset Wallets: Noncustodial virtual 
        asset wallets allow virtual asset users to store their assets 
        on a personal device rather than in a financial institution. 
        Personal ownership and use of noncustodial wallets are not 
        currently regulated under the BSA. \64\ Strong consideration 
        should be given to prohibiting virtual asset transaction 
        validators from allowing noncustodial wallets to transact 
        through their systems. Noncustodial wallets also should be 
        subject to border declaration requirements, just as cash and 
        other bearer instruments are. However, even with those 
        safeguards in place, noncustodial virtual asset wallets would 
        remain very attractive to people engaged in illicit activity.

    Imposing regulations on people and entities who perform these 
functions almost certainly would make it difficult for some existing 
implementations of blockchain-based payments to continue operating as 
they do today. But it is not the purpose of the BSA or the global 
financial transparency regime to enable or accommodate all manner of 
financial products and services, regardless of the threat that they 
pose to financial transparency. Indeed, some financial products 
services have been deemed so risky that they have been banned.

    Bearer Shares: All 50 States prohibit the issuance of 
        bearer shares, \65\ and the ILLICIT CASH Act would ban bearer 
        shares at the national level. \66\ The FATF has recommended 
        that countries ban bearer shares and convert any outstanding 
        bearer shares into registered shares or immobilize them. \67\

    Shell Banks: The FATF recommends that regulators not 
        license shell banks, and U.S. financial institutions are 
        prohibited from entering into correspondent banking 
        relationships with shell banks. \68\

    Anonymous Accounts: The FATF recommends that financial 
        institutions should be prohibited from keeping ``anonymous 
        accounts or accounts in obviously fictitious names,'' \69\ and 
        U.S. financial institutions that are covered by a customer 
        identification program rule are prohibited from offering 
        anonymous accounts. \70\

    New York County District Attorney Cyrus Vance last year told the 
House Committee on Financial Services that some VASPs ``appear to cater 
to traffickers who are trying to post advertisements.'' \71\ Because of 
their potential for anonymity, virtual assets pose challenges for 
investigators. Even when a virtual asset has a public ledger that 
allows for transactions to be traced, connecting a transaction to an 
individual is difficult, unless that individual has been identified by 
a financial institution or has associated himself or herself with a 
wallet address through other means. Transaction data alone is of 
limited value, which is why anonymous accounts have been banned 
elsewhere in the financial system.
Consumer Payment Systems
    Money transmission regulations should be revised to require that 
money transmitters that maintain accounts for their customers implement 
risk-based customer identification and CDD programs, and exclusions to 
the definition of money transmission should be narrowed.
    The payments landscape has changed considerably during the past two 
decades, starting with the founding of PayPal in December 1998. \72\ As 
Bank of England Governor Mark Carney recently said, ``Retail 
transactions are taking place increasingly online rather than on the 
high street, and through electronic payments over cash. And the 
relatively high costs of domestic and cross border electronic payments 
are encouraging innovation, with new entrants applying new technologies 
to offer lower cost, more convenient retail payment services.'' \73\
    As payments evolve, the BSA must evolve with them. The BSA 
regulations for money transmitters are insufficient to address the risk 
resulting from the evolution of consumer payments, because they do not 
adequately cover customer identification for account holders and 
because exclusions to the definition of money transmission under the 
BSA leave our payment systems exposed to illicit activity.
    The first deficiency in our money transmission regulations arises 
from customer identification and CDD requirements. The money 
transmission regulations that cover an increasing number of consumer 
payments are geared toward financial institutions that serve occasional 
customers. This is most clear in the lack of customer identification 
and CDD rules governing account relationships with MSBs, even though 
many MSBs maintain accounts for their customers, especially in the 
online consumer payments and virtual assets segments. Instead, MSBs are 
only required to identify customers who carry out transactions worth 
$3,000 or more. \74\ In contrast, banks must perform customer 
identification and CDD at account opening. \75\ The opportunity for 
regulatory arbitrage is clear. Although many MSBs have implemented 
risk-based customer identification and CDD programs with thresholds 
below $3,000 that mirror those of banks, the lack of a legal 
requirement leaves bad actors space to operate.
    The second deficiency in our money transmission regulations arises 
from exclusions from the definition of money transmission. In 2011, 
FinCEN issued a rule that added facts and circumstances limitations to 
the definition of money transmission. \76\ One such limit on this 
definition is particularly noteworthy: Firms that act as a payment 
processor to facilitate payments through a clearance and settlement 
system by written agreement with the seller are excluded from the 
definition of money transmission and thus are not subject to the BSA. 
\77\ FinCEN refers to this exclusion as ``the payment processor 
exemption.'' \78\
    The 2011 rulemaking codified administrative rulings that FinCEN had 
issued since the early 2000s. \79\ The payment processor exemption was 
initially intended to apply to payments that posed little illicit 
finance risk, \80\ such as utility payments, \81\ so the exemption made 
sense when FinCEN developed it.
    But the effect of the payment processor exemption has outgrown its 
original rationale. The payment processor exemption is now being relied 
upon by FinTech firms with more diverse and higher risk business 
models. \82\ Moreover, the types of payments handled by payment 
processors have more explanatory power than was believed when the 
exemption was created, judging from the red flags published by FinCEN 
and the FATF. But the payment processor exemption allows payment 
processors to act as unregulated financial cutouts between buyers and 
sellers, \83\ impairing visibility into merchant behavior and risk. 
\84\
    In practice, this means that when a bank's merchant customer 
receives money through a payment processor that aggregates incoming 
payments and sweeps those funds into the merchant customer's account on 
a periodic basis, the merchant's bank has reduced visibility into that 
merchant's source of funds. The merchant's bank only sees large 
transactions coming from the payment processor to the merchant's 
account at the bank. In other words, the end-to-end payment chain, 
which includes the originator, intermediaries and ultimate beneficiary 
of the payment, is not seen by a single party with a transaction 
monitoring obligation, and the financial institution at the end of the 
payment chain may not be able to determine the source of funds for 
sanctions screening purposes.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The merchant's bank does not know whether its merchant customer is 
receiving funds from U.S. or foreign buyers, it does not know its 
customer's average retail transaction amount, and it does not know its 
customer's rate of returned or reversed transactions. These are key 
factors that banks use to risk rate their customers and to determine 
whether to file a SAR.
    When payment chains become longer and banks lose visibility, they 
are not as well positioned to manage risk or assist law enforcement 
efforts to disrupt criminal activity. And as payment chains become 
longer, the payment processor, which may be excluded from the 
definition of money transmitter under the BSA, becomes the party with 
the best insight into a merchant's risk. It is therefore vital that 
payment processors be covered by appropriate financial transparency 
measures when they have the best insight into merchants' activities and 
risk.
    Money launderers acting as payment processors have gained access to 
U.S. clearance and settlement networks, and the exclusions to the 
definition of money transmission probably gave the bad actors space to 
operate within the U.S. financial system for long periods of time. In 
2016, the Treasury Department's Office of Foreign Assets Control (OFAC) 
sanctioned the PacNet Group, which was ``the third-party payment 
processor of choice for perpetrators of a wide range of mail fraud 
schemes.'' \85\ In 2019, OFAC sanctioned the Smile Group, which 
funneled drug proceeds to an Argentina-based online pharmacy. \86\ The 
Smile Group offered international credit card payments, point-of-sale 
terminals, prepaid cards, and Bitcoin trading. \87\ The Smile Group 
claimed to have relationships with major U.S.-based credit card system 
operators and online payment systems. \88\ It courted customers engaged 
in high-risk businesses such as adult content, online gaming, health 
and wellness products, dating, and call centers. \89\
    Many of the human trafficking red flags identified by FinCEN \90\ 
and the FATF \91\ rely on visibility into consumer payments. Therefore, 
maintaining and improving visibility into these payments is critical to 
detecting human trafficking activity. The gaps in the regulatory regime 
governing consumer payments should be closed, particularly the gaps in 
customer identification and the gaps in the definition of money 
transmission that allow some higher risk businesses to operate outside 
the BSA framework.
ENDNOTES

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        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SASSE
                     FROM DOUGLAS PETERSON

Q.1. As we as a Nation get serious about confronting human 
trafficking and modern-day slavery as the scourge it is, we've 
seen just how crucial it is to leverage the resources and 
expertise of various Federal, State, and local law enforcement 
agencies as well as partners in civil society ranging from data 
analytics experts to victim advocates in this fight. General 
Peterson, you've played a crucial role in standing up a task 
force to do just that, and I want to recognize and pay tribute 
to your leadership.
    Moving forward, what are the most immediate challenges to 
the effective cooperation of your task force's various members?
    What can be done to integrate the frontline investigation 
and prosecution of human trafficking with what capabilities 
that are out there to go after traffickers' money laundering 
and other illicit financial activities?

A.1. The two most immediate challenges to the effective 
cooperation of NHTTF's various members are communication and 
data management. There exist a high level of buy-in from local 
and State law enforcement agencies. Nebraska is wonderful that 
way. They want to work together on this issue and do so when 
they can. However, there are well over 200 law enforcement 
agencies in Nebraska, most stretched thin and many covering 
massive geographic areas with few officers; it is difficult to 
maximize each law enforcement agency's contribution--expertise, 
personnel, relevant data--without some comprehensive 
communication mechanism that is also user-friendly. The related 
challenge is the lack of a more robust data-gathering, -
storing, and -analyzing system. The good news is that we have 
momentum on two fronts: first, the human trafficking component 
of our statewide fusion center just went live. This is a portal 
through which law enforcement agencies can now upload human 
trafficking data for analysis and cross-referencing. Second, a 
close NHTTF partner, HTI Labs, is working on developing an 
updated version of its Leads Platform--a mechanism whereby it 
alerted relevant law enforcement agencies to every Nebraska-
based ad on Backpage that had high risk factors for sex 
trafficking. HTI Labs is now writing code to gather and analyze 
such data on dozens of other websites, those to whom Backpage's 
customers migrated. This will help all law enforcement find and 
stop online sex trafficking in Nebraska.
    The most important thing that can be done to integrate the 
frontline investigation and prosecution of human trafficking 
with the capacities that now exist to go after traffickers' 
money laundering and other illicit financial activities is, 
again, communication. There is no lack of desire to use all 
legitimate means at our disposal to address human trafficking 
in our State. The capacities that exist to confront the 
financial aspects are exciting and hold a lot of potential for 
success in uncovering and dismantling human trafficking 
enterprises. But the capacities need to be known and understood 
and accessible before they are used. That, I believe, is the 
greatest obstacle to tapping the synergy that is possible 
between law enforcement fighting human trafficking and the 
experts on exposing financial aspects of illicit businesses.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SASSE
                        FROM JULIE SLAMA

Q.1. What particular challenges does Nebraska face in the fight 
against human trafficking as compared to other States?

A.1. When one thinks of human trafficking, it is likely 
pictured as an ``urban'' issue. However, human trafficking is a 
problem across the entire United States. Nebraska is not a very 
populous State and has many small towns, which also face human 
trafficking. This creates a mix of more refined trafficking 
operations, like those found on Backpage, and more low-tech 
operations, like a meth dealer in a small town using his 
product to bring girls into the life style. A challenge that is 
specific to Nebraska is the interconnection between meth use 
and human trafficking in our small towns. Oftentimes, a dealer 
operating in a community will offer a girl meth for the first 
time. Once she's hooked, the dealer can then pay the victim in 
drugs. The high addiction rate for the drug all but ensures 
that the girl is hooked after the initial high and will do 
anything it takes for more drugs. She will further isolate 
herself from those outside of the drug dealer and the addiction 
becomes all-encompassing. This creates unique challenges for 
lawmakers, as human trafficking can be effectively addressed in 
this situation by State lawmakers, while the interstate drug 
trafficking which brings meth into the small town in the first 
place is best handled by Federal lawmakers. The State level is 
a bit more nimble in terms of quickly passing effective 
legislation to fight human trafficking, but such bills get cut 
off at the knees because they fail to address the supply issue 
of meth which is causing women to be drawn into trafficking. If 
the dealer is taken off the streets, another one will soon 
replace him, likely using the same methods to victimize women 
for drugs. To effectively fight human trafficking in our rural 
areas, Nebraska must both have a strong statutory framework for 
human trafficking, and Congress must ensure that Federal law 
enforcement has the tools necessary to crack down on interstate 
drug trafficking.

Q.2. What populations should we be particularly worried for 
their vulnerability to traffickers?

A.2. The biggest population sets vulnerable to human 
trafficking are teenagers who are female and come from homes 
that are broken or unsafe, teens who are bullied in school by 
peers, adult women who are being abused, and those who are 
addicted to controlled substances.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SASSE
                       FROM CRYSTA PRICE

Q.1. HTI Labs works with frontline agencies to develop policy 
and build tools for better identification, response, 
investigation, and provision of services that has made a real 
difference in the fight against the scourge of human 
trafficking in Nebraska.
    How scalable are these tools beyond Nebraska?

A.1. Many of the tools and policies we have produced for 
Nebraska are scalable and could be exported to other States 
with minimal or no modification in most cases. For example, 
we've created a national dataset and trafficking risk 
algorithms that identify trafficking networks across the 
country. This work is highly scalable. The data alone could be 
used right now by financial institutions across the country to 
better identify potential trafficking. Moreover, since the data 
are national in scope, there is no reason that our leads and 
collaborative work with law enforcement cannot be extended 
nationally as well. At present, we are working with our law 
enforcement partners to seek funding to create a more export-
ready version of our law enforcement platform. The beta tested 
platform provides leads to law enforcement and permits the 
exchange of information to develop those leads into 
prosecutable cases. A more scalable version of this platform 
would allow law enforcement agencies across the country to 
access and investigate our leads. As law enforcement uses the 
platform, their inputs improve the trafficking prediction 
algorithm that underlies it. (The way artificial intelligence 
works is that as you get more data, the algorithms become 
better and more efficient at predicting cases of human 
trafficking.)
    We've also created software, PAVE (Providing Avenues for 
Victim Empowerment), which permits better systemwide 
identification and response to trafficking. PAVE allows 
professionals across the community (hospitals, child welfare, 
nonprofits, law enforcement, and other ``first responders'') to 
screen for and identify trafficking as a community, and then 
connect the victims to available services in their area. This 
software is the culmination of a community effort spanning over 
3 years that was rooted in the efforts of the Nebraska Human 
Trafficking Task Force (NHTTF) to study and develop a 
systemwide screening, reporting, and responding process. For 
the first time, PAVE gives us the ability to know how many 
victims of trafficking we have and whether someone is at risk 
of trafficking based on the totality of their system 
interactions. As with the law enforcement platform, PAVE allows 
us to learn as it is used, so we will get increasingly better 
at knowing which red flags are actually representative of 
trafficking, and then we can update those indicators so that 
every agency has near real-time access to the best possible 
screening tool based on the most current research. Most 
importantly, the community can hold itself accountable for 
instances of potential trafficking that aren't acted upon.
    While our initial goal with PAVE was to create something 
that would solve local problems, we quickly realized how 
generalizable these challenges and solutions are across other 
communities and other States. Thus, we were able to design PAVE 
to be purposefully scalable to any locale. PAVE is set up to 
allow agencies to specify their reporting and referral policies 
in the onboarding process, allowing different States to have 
different policies. This allows us to export what we have 
learned and developed locally to other States in a way that 
allows different locations to tailor it to work for them. Given 
the task force model that the Federal Government has enabled in 
many States, PAVE could be effectively implemented across the 
country leveraging these existing task forces. As this scales 
across the country, we will have better national estimates of 
trafficking and associated risk indicators, and we will be able 
to conduct applied research on how this differs across the 
geographic locations and Government agencies. For example, is 
it true that there is a higher proportion of victims within 
child welfare system? We don't know because we don't have 
comparable data; nationwide adoption of PAVE would create the 
necessary data to answer these questions. The only potential 
barrier to scaling of PAVE is that the cost of implementation 
and maintenance is often too high to pass on directly to 
potential State Government agencies and nonprofits wishing to 
use it. So, the key to scaling is to help coordinate and raise 
funding to subsidize these costs.
    Finally, we engaged in the research, design, and drafting 
of a Nebraska law providing criminal record relief for 
trafficking victims that can serve as a model for other States. 
The legislation \1\ makes it easier for trafficking victims to 
escape their situations and rebuild their lives by allowing 
them to clear criminal records for crimes they were forced to 
commit. Sex trafficking victims frequently have multiple 
prostitution charges, and a conviction for prostitution can 
deny public housing assistance and increase the difficulty of 
getting a job. Recognizing that our State (like all others) 
faces challenges with certifying victims, where survivors often 
repeat their stories without any documentation being created, 
we prioritized elements of the bill that would avoid 
relitigating a survivor's status as a victim. To this end, the 
law allows law enforcement investigators and service providers 
working with the survivor to generate official documentation of 
their victimization. States adopting this type of law should 
seriously consider how this generation of official 
documentation can be built into existing investigative 
processes for both minors and adults. We have realized that 
PAVE can be used to facilitate the implementation of this law, 
where the screening and identification of a trafficking victim 
triggers a recommendation to pursue the criminal record relief. 
The relief provided by the law, and the ability for law 
enforcement professionals to create the documentation necessary 
to trigger the law, has been critical to the success of local 
human trafficking cases.
---------------------------------------------------------------------------
     \1\ The 2018 Nebraska bill, LB 1132, can be accessed here. When 
passed, the bill amended NRS 28-902 and 29-3523.
---------------------------------------------------------------------------
    After the law was adopted by the State Unicameral, we 
developed a tool that legal advocates are using to create data 
behind the law's use so that we can understand its use and 
effects and identify improvements that should be made. This 
tool is general enough to be useful for any of the 44 States 
with a criminal record relief law on the books. \2\ The law, 
NRS 28-902 and 29-3523, was recognized by a recent report from 
the Polaris Project, the American Bar Association, Brooklyn Law 
School, and the University of Baltimore Law School as the best 
of its type in the country. \3\ Shortly after its passage, we 
were invited to speak about it at a national conference, 
resulting in other States reaching out seeking advice for 
passing a similar bill.
---------------------------------------------------------------------------
     \2\ Emerson, J. (2019). ``State Report Cards: Grading Criminal 
Record Relief Laws for Survivors of Human Trafficking''. Retrieved from 
https://polarisproject.org/sites/default/files/Grading-Criminal-Record-
Relief-Laws-for-Survivors-of-Human-Trafficking.pdf.
     \3\ Ibid.

Q.2. As someone who's had a front-row seat to a lot of efforts 
to coordinate between different Federal, State, and local 
agencies and outside partners, what have been the keys to the 
successes of these partnerships, and what are the greatest 
challenges and pitfalls that can hinder effective cooperation 
---------------------------------------------------------------------------
at a task-force level?

A.2. A number of factors have been critical in the degree to 
which Nebraska has achieved success in its anti-trafficking 
efforts. Among the most important is the political will to work 
together across differing agendas. While trafficking is 
something everyone wants to do something about, it is important 
to avoid getting distracted by connected issues on which 
consensus is not possible. For example, there are many people 
who want to deal with the larger issue of prostitution, upon 
which there are starkly differing views. We have found success 
by focusing on trafficking, the element of the commercial sex 
industry that involves force, fraud, coercion, and/or minors.
    Another important key to success is that there are 
champions within agencies who are empowered to represent their 
agencies. These are the individuals on the front lines of the 
issue within an agency, who are often doing most of the day-to-
day work on a task force. In order to be effective, they must 
have genuine buy-in from agency heads. This gives champions 
access to agency decision makers and empowers them to have the 
confidence to try something new and to avoid getting beaten 
down by cynicism. It also provides an important conduit through 
which to coordinate task force goals with State agency 
procedures, policy, and legislative initiatives.
    Government funding is not always sufficient. It is 
important that there be a commitment to the effort from private 
sector local funders and coordinating agencies. In the Omaha 
metropolitan area, local philanthropy has funded agents of 
change, such as the Women's Fund of Omaha, to help sustain the 
efforts of the task force by acting in a full-time coordination 
capacity. This has been backed up by funding support to 
nonprofit service providers to help build capacity. Their 
involvement has helped to ensure that public and private 
entities have confidence that the human trafficking effort is 
going to be a sustained effort in which they can confidently 
invest their time and resources.
    Private funding has also been important in putting in place 
positions that are funded to solve the specific problems that 
emerge. While the NHTTF Federal grant funded coordinator 
positions, local donors funded additional full-time positions. 
These roles require access to the decision makers, so that 
solutions can stick. They also need be viewed as neutral, 
objective actors in order to avoid the inevitable partisanship 
wars. And they need to effectively assess and leverage the 
community's assets. For example, we have ambitious individuals 
in law enforcement all across the State who are committed to 
this issue; our task force leadership recognized this and 
restructured to better empower those assets by asking them to 
lead important committees. Moreover, these leaders not only 
brought HTI Labs, a private company, onto the Task Force to 
help identify and solve problems, they also designated us to 
lead an important committee.
    The inclusion of HTI Labs, a socially responsible AI and 
tech research company, as an active full-time member of the 
NHTTF team has been an important key to success as well. It has 
permitted the Task Force to integrate data, research, and 
technology in all its initiatives and decisions. This has 
ensured that the efforts of the task force are data informed, 
and it has provided data and support to forward-leaning 
champions within an agency attempting to make change. Just as 
importantly, it ensures that new and innovative ideas are put 
forward and implemented.
    For example, our research showing 900 individuals 
advertised in Nebraska each month on Backpage helped galvanize 
support needed for State-level policymaking and fundraising 
efforts. Ultimately, decision makers want to see the data 
behind what you're trying to do, why it will work, what it will 
take, and how you will know if it's working or not working. 
This requires a systematic but phased approach that brings in 
data and research at every step. Without having data and 
research as a partner at the table, this can be tough, because 
task force partners are relying on the scant existing data or 
research.
    Our experience with the NHTTF has also revealed a number of 
challenges and pitfalls. The most persistent challenge has been 
sustainability. Structurally, there is a need for a clearly 
delineated formal organization. Institutional structure needs 
to be laid out with clear lines delineating responsibilities 
vested in the task force and clear lines of communication with 
the decision maker. Organizationally, there needs to be a 
decision maker or decision-making capacity. Financially, there 
is a need for sustainable funding levels. Most task forces are 
hitting walls that span beyond their specific issue. Solving 
these challenges takes time and a long-term commitment that 
includes some discretionary funding available to the decision 
maker.
    When the only source of task force funding and efforts 
comes from a single Federal or State grant, one pitfall that 
can result is a narrow focus on meeting grant requirements 
rather than solving problems. This is even more problematic 
when the grant incentivizes the wrong thing. For example, when 
a grant encourages a focus on increasing the number of arrests, 
we have found that this often results in victims being arrested 
in ``low-hanging fruit'' sting operations.
    Our task force has repeatedly come across challenges 
created by a lack of information sharing. This results in 
victims retelling the same story, resharing the same 
information, and refilling out the same documentation. At the 
same time, too often, we find that not enough is done with this 
information. There is simultaneously far too much victim 
contact and far too many occurrences of victims falling through 
the cracks. Conversely, the system is completely overburdened 
and unable to absorb these inefficiencies.
    Resolving impediments to information sharing requires a 
concerted effort to get beyond the inevitable barriers to 
information sharing across agencies in order to broker a 
solution that solves the particular need everyone is attempting 
to address. For example, solving for these issues with our 
NHTTF screening and reporting process requires addressing the 
information sharing restrictions contained in VAWA. Brokering 
solutions across multiple agencies and activities requires that 
there be champions in each of these agencies and activities. 
One problem that we face is that we don't have the financial 
industry represented on the task force, so efforts to partner 
with banks and financial institutions have been greatly 
hindered by the inability to take on a proactive approach.
    A final major challenge is the issue of cynicism. Most of 
the people engaged in the effort against human trafficking have 
sat on many task forces in their careers. Their experience has 
been that there is a lot of energy at first, but ultimately 
little is accomplished before the initiative ``flames out.'' 
People need to feel that this time things will work because 
they have what they didn't have in previous efforts.

Q.3. My understanding is that if we were having a conversation 
about your work a few years ago, we'd be spending a lot of time 
focused on analysis of Backpage.com data, but now we live in a 
post-Backpage world. I was one of the cosponsors of the 
legislation we enacted to strip Backpage and other bad actors 
of the liability exemption in Federal law that they were taking 
advantage of. Now there's no doubt in my mind that companies 
like Backpage should be held accountable for profiting off the 
exploitation of women and girls, but that doesn't mean we 
shouldn't be grappling with the challenges posed by a post-
Backpage world.
    Given the nature of the internet, should we expect over 
time that motivated customers are always going to be able to 
connect with traffickers? Is there any hope of leveraging 
policy and technology to disrupt the connection between supply 
and demand for trafficking victims?

A.3. Policy and technology can help reduce trafficking, but 
doing so effectively requires understanding the market for 
commercial sex as a whole. By conceptualizing and measuring the 
entire market and differential effects within varying segments 
of sex providers, traffickers, and sex buyers, policies and 
technology can be adapted over time to reduce the number of 
trafficking victims. However, policies or technologies which 
affect only one aspect of the market at once are unlikely to 
permanently reduce trafficking and have significant risks of 
unintended consequences.
    Within this market, supply is determined by the 
availability of sex providers' services. The same services can 
be provided voluntarily and as a result of coercion. The 
degrees of agency and exploitation that sex providers 
experience within the commercial sex market exist along a 
continuum from those sex providers with full agency who 
voluntarily participate in the commercial sex industry to those 
who are victims of sex trafficking and have severely 
constrained agency. Even among independent sex providers, 
reasons to enter or stay in the industry are diverse and 
nuanced. For example, some independent sex providers exchange 
sex acts for basic survival needs (food, clothing, shelter, 
etc.).
    The supply of sex providers is not fixed. Research has 
shown supply responds to factors such as the legal framework 
surrounding prostitution, economic strain, and social 
stigma.\4\ \5\ \6\ \7\ Importantly, these factors do not 
uniformly affect all people providing commercial sex. Most 
intuitively, people who are trafficked cannot choose to exit 
the market; their traffickers must make that choice. 
Furthermore, traffickers avoid internalizing costs that many 
sex providers face (e.g., negative health and safety effects, 
law enforcement responses, and social stigma), meaning that 
traffickers are relatively overcompensated compared with 
uncoerced sex providers. \8\
---------------------------------------------------------------------------
     \4\ Cho, S.Y., Dreher, A., and Neumayer, E. (2013). ``Does 
Legalized Prostitution Increase Human Trafficking?''. World 
Development, 41, 67-82. Retrieved from https://www.sciencedirect.com/
science/article/pii/S0305750X12001453.
     \5\ Jakobsson, N., and Kotsadam, A. (2015). ``The Economics of 
Trafficking for Sexual Exploitation'' (No. 7/2015). Memorandum. https:/
/www.semanticscholar.org/paper/The-Economics-of-Trafficking-for-Sexual-
Jakobsson-Kotsadam/08a12aaaf68b897a6248ccd56f5fd21c63999a78
     \6\ Bucher, J., Manasse, M., and Milton, J. (2015). ``Soliciting 
Strain: Examining Both Sides of Street Prostitution Through General 
Strain Theory''. Journal of Crime and Justice, 38(4), 435-453. 
Retrieved from https://www.tandfonline.com/doi/abs/10.1080/
0735648X.2014.949823.
     \7\ Della Giusta, M., Di Tommaso, M.L., and Strom, S. (2009). 
``Who Is Watching? The Market for Prostitution Services''. Journal of 
Population Economics, 22(2), 501-516. Retrieved from https://
www.econstor.eu/bitstream/10419/63101/1/502865083.pdf.
     \8\ Lee, S., and Persson, P. (2018). ``Human Trafficking and 
Regulating Prostitution''. Retrieved from https://web.stanford.edu/
perssonp/Prostitution.pdf.
---------------------------------------------------------------------------
    Given this, policies aimed at disrupting the connection 
between supply and demand have different effects in the 
voluntary versus trafficked segments. All else equal, policies 
that make selling sex relatively less attractive (e.g., by 
increasing the costs internalized by providers through 
increased enforcement or decreasing revenue by making it harder 
to find sex buyers) will decrease the supply of voluntary 
providers (especially those with tolerable outside options) 
more than the supply of trafficked people. This is so because 
traffickers do not internalize many of those costs, leading to 
their continued participation in a market that is no longer 
``worth it'' for someone with other options.
    In contrast, demand within the market is determined by the 
prevalence of exclusively voluntary buyers and associated 
determinants. As with supply, demand for commercial sex is 
malleable. Factors affecting it include social stigma, 
perceived risk of arrest, law enforcement presence, and 
prevailing attitudes and beliefs concerning commercial sex.\9\ 
\10\ \11\ In one recent survey, the factors active buyers \12\ 
most frequently identified as important in their decisions to 
buy sex were: (1) certainty that there was no risk of sexually 
transmitted infection, (2) being sure that friends and family 
wouldn't find out, and (3) confidence that they wouldn't be 
arrested. \13\
---------------------------------------------------------------------------
     \9\ Della Giusta, M., Di Tommaso, M.L., and Strom, S. (2009). 
``Who Is Watching? The Market for Prostitution Services''. Journal of 
Population Economics, 22(2), 501-516. Retrieved from https://
www.econstor.eu/bitstream/10419/63101/1/502865083.pdf.
     \10\ Collins, A., and Judge, G. (2010). ``Differential Enforcement 
Across Police Jurisdictions and Client Demand in Paid Sex Markets''. 
European Journal of Law and Economics, 29(1), 43-55. Retrieved from 
https://link.springer.com/article/10.1007/s10657-009-9107-9.
     \11\ Kotsadam, A., and Jakobsson, N. (2014). ``Shame on You, John! 
Laws, Stigmatization, and the Demand for Sex''. European Journal of Law 
and Economics, 37(3), 393-404. Retrieved from https://
link.springer.com/article/10.1007/s10657-012-9339-y.
     \12\ Defined in this survey as those who reported purchasing sex 
multiple times within the last year or just once with the intent to 
purchase again.
     \13\ Demand Abolition. (2018). ``Who Buys Sex? Understanding and 
Disrupting Illicit Market Demand''. Retrieved from https://
www.demandabolition.org/wp-content/uploads/2019/07/Demand-Buyer-Report-
July-2019.pdf.
---------------------------------------------------------------------------
    As with many anti-crime efforts, efforts to combat 
trafficking and/or prostitution run the risk of displacing 
rather than reducing crime. Displacement can be seen in ``not 
in my backyard'' campaigns combating prostitution in particular 
neighborhoods which led to sex providers simply moving 
elsewhere, as well as transitions between specific websites 
facilitating the sale of sex (e.g., the migration of commercial 
sex ads from Craigslist.com to other advertisement sites such 
as Backpage.com, and from Backpage to a host of commercial sex 
sites which have sprung up to take its place).\14\ \15\ \16\ 
Given the market framework, it is not surprising that 
enforcement efforts targeting particular venues (whether in the 
real world or online) displace rather than reduce crime, 
because the barriers to shifting venues are low. More broadly, 
these efforts are not targeted at the fundamental determinants 
of supply or demand.
---------------------------------------------------------------------------
     \14\ Ongoing work by HTI Labs has found that multiple websites 
were created and used to host commercial sex ads following Backpage's 
shutdown.
     \15\ Hubbard, P. (1998). ``Community Action and the Displacement 
of Street Prostitution: Evidence From British Cities''. Geoforum, 
29(3), 269-286. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/
download?doi=10.1.1.619.6450&rep=rep1&type=pdf.
     \16\ Stoeffel, K. (2011, April 26th). ``Village Voice Media 
Getting Down and Dirty With Escort Ads''. The Observer. Retrieved from 
https://observer.com/2011/04/village-voice-media-getting-down-and-
dirty-with-escort-ads/. For example, as noted in Stoeffel's piece, the 
web traffic analysis company Quantcast estimated that visitors to 
Backpage jumped by half-a-million visitors following Craigslist.com's 
closure of its Adult Services section.
---------------------------------------------------------------------------
    While much more research is needed, what we know suggests 
that policy and technology should be aimed at targeting 
fundamental determinants related to trafficking and demand for 
commercial sex. First, enforcement efforts against trafficking 
raise the risks to traffickers themselves. When traffickers 
internalize the costs of their illegal activities (instead of 
forcing those they exploit to take the fall for them), 
trafficking should become relatively less attractive. Second, 
evidence indicates that sex buyers are sensitive to the risk of 
arrest. However, to effectively suppress demand, enforcement 
efforts would need to change sex buyers' perceptions of risk 
broadly, not just within particular venues or jurisdictions.
    Finally, because of the complex and adaptive nature of the 
commercial sex market, enforcement efforts should always go 
hand-in-hand with efforts to identify and bring services to 
victims of trafficking. Without this comprehensive approach, 
anti-trafficking policies could unintentionally hurt victims. 
For example, if reduced demand for commercial sex causes the 
price of transactions to drop without targeting traffickers, 
traffickers might respond by forcing trafficked people to 
engage in more sex acts to bring in equivalent money. Finally, 
policy actions should be embedded within an evaluation 
framework that allows us to measure their effects and make 
adjustments as necessary. This ongoing measurement is critical 
to responding to innovations and adaptations within the 
commercial sex market.

Q.4. Are there any lessons that can be drawn from the fight 
against the online availability of child pornography?

A.4. While HTI Labs' expertise does not lie in the domain of 
child pornography, I nonetheless believe there are lessons for 
the anti-trafficking movement to learn from the fight against 
images of child abuse online. First, the production of child 
pornography (under some circumstances) constitutes trafficking 
since by definition the commercial sexual exploitation of a 
child, through pornography or otherwise, is trafficking. 
Second, some sex buyers seek out sex with minors, including 
children. Unfortunately, it is not known how large a share of 
the sex buying population this is. \17\ Furthermore, pedophilia 
and consumption of images of child abuse are subject to strong 
social stigma and legal penalties, making sound research on 
this population of offenders particularly difficult.
---------------------------------------------------------------------------
     \17\ Seto, M.C., and Eke, A.W. (2005). ``The Criminal Histories 
and Later Offending of Child Pornography Offenders''. Sexual Abuse: A 
Journal of Research and Treatment, 17(2), 201-210. Retrieved from 
https://www.researchgate.net/publication/7770076-The-Criminal-
Histories-and-Later-Offending-of-Child-Pornography-Offenders. While it 
is unknown to what extent the share of the sex buying population 
explicitly seeks out sex with minors, there is some evidence to suggest 
there is overlap between these two groups. For instance, Seto and Eke 
found a significant portion of adult male child pornography offenders 
had a criminal history involving procuring prostitution.
---------------------------------------------------------------------------
    However, certain strands of research make me hesitant to 
draw tight analogies between those who view images of child 
sexual abuse online and those who shop for commercial sex with 
adults online. First, there is strong correlation between 
viewing child pornography and pedophilia (the persistent sexual 
interest in prepubescent children). \18\ There also appears to 
be increasing evidence that pedophilia's origins are 
biological. \19\ An emerging body of evidence shows that those 
who commit child pornography offenses also commit ``hands on'' 
offenses against children and that these physical offenses 
sometimes precede the viewing of such images. \20\ 
Additionally, child pornography offenders have been documented 
to have a host of underlying psychological and social issues, 
such as socio-affective disorders (e.g., depression and 
anxiety), cognitive distortions (e.g., the internal 
justification of particular offenses) and other distinct 
underlying personality traits.\21\ \22\ \23\ Relatedly, 
rehabilitative efforts may take the form of cognitive 
behavioral-therapy or other forms of therapeutic services. \24\
---------------------------------------------------------------------------
     \18\ Seto, M.C., Cantor, J.M., and Blanchard, R. (2006). ``Child 
Pornography Offenses Are a Valid Diagnostic Indicator of Pedophilia''. 
Journal of Abnormal Psychology, 115(3), 610. Retrieved from https://
www.csaprimaryprevention.org/files/A-Child-Pornography-Offenses-Are-a-
Valid-Diagnostic-Indicator-of-Pedophilia.pdf.
     \19\ Fazio, R.L. (2018). ``Toward a Neurodevelopmental 
Understanding of Pedophilia''. The Journal of Sexual Medicine, 15(9), 
1205-1207. https://www.jsm.jsexmed.org/article/S1743-6095(18)30933-0/
fulltext
     \20\ Bourke, M.L., and Hernandez, A.E. (2009). ``The `Butner 
Study' Redux: A Report of the Incidence of Hands-on Child Victimization 
by Child Pornography Offenders''. Journal of Family Violence, 24(3), 
183. Retrieved from https://link.springer.com/article/10.1007/s10896-
008-9219-y.
     \21\ Price, M., Lambie, I., and Krynen, A.M. (2015). ``New Zealand 
Adult Internet Child Pornography Offenders''. Journal of Criminal 
Psychology, 5(4), 262-278. Retrieved from https://www.researchgate.net/
publication/282151003-New-Zealand-adult-internet-child-pornography-
offenders.
     \22\ Houtepen, J.A., Sijtsema, J.J., and Bogaerts, S. (2014). 
``From Child Pornography Offending to Child Sexual Abuse: A Review of 
Child Pornography Offender Characteristics and Risks for Cross-Over''. 
Aggression and Violent Behavior, 19(5), 466-473. Retrieved from https:/
/www.sciencedirect.com/science/article/pii/S1359178914000810.
     \23\ Niveau, G. (2010). ``Cyber-Pedocriminality: Characteristics 
of a Sample of Internet Child Pornography Offenders''. Child Abuse and 
Neglect: The International Journal, 34(8), 570-575. Retrieved from 
https://www.researchgate.net/publication/45096626-Cyber-
Pedocriminality-Characteristics-of-a-Sample-of-Internet-Child-
Pornography-Offenders.
     \24\ Bourke, M.L., and Hernandez, A.E. (2009). ``The `Butner 
Study' Redux: A Report of the Incidence of Hands-on Child Victimization 
by Child Pornography Offenders''. Journal of Family Violence, 24(3), 
183. Retrieved from https://link.springer.com/article/10.1007/s10896-
008-9219-y.
---------------------------------------------------------------------------
    On the other hand, determinants of purchasing commercial 
sex from adults seem to involve less deeply rooted factors such 
as the positive experiences buyers associate with purchasing 
sex and beliefs that prostitution is a victimless crime.\25\ 
\26\ \27\ These different profiles of offenders suggest that 
demand for images of child abuse may be less elastic than 
demand for commercial sex, since it seems to derive from deep-
seated factors that require intensive therapy to address. 
Therefore, we ought to be hesitant about the wholesale 
application of lessons learned from one crime to the other.
---------------------------------------------------------------------------
     \25\ Bucher, J., Manasse, M., and Milton, J. (2015). ``Soliciting 
Strain: Examining Both Sides of Street Prostitution Through General 
Strain Theory''. Journal of Crime and Justice, 38(4), 435-453. https://
www.tandfonline.com/doi/abs/10.1080/0735648X.2014.949823
     \26\ Monto, M.A., and McRee, N. (2005). ``A Comparison of the Male 
Customers of Female Street Prostitutes With National Samples of Men''. 
International Journal of Offender Therapy and Comparative Criminology, 
49(5), 505-529. Retrieved from https://www.researchgate.net/
publication/313202948-A-comparison-of-the-male-customers-of-female-
street-prostitutes-with-national-samples-of-men.
     \27\ Demand Abolition. (2018). ``Who Buys Sex? Understanding and 
Disrupting Illicit Market Demand''. Retrieved from https://
www.demandabolition.org/wp-content/uploads/2019/07/Demand-Buyer-Report-
July-2019.pdf.
---------------------------------------------------------------------------
    Nonetheless, many current and previous efforts to combat 
the online child pornography have valuable lessons for 
collaborative anti-trafficking efforts. Early efforts to combat 
the online availability of child pornography showed the 
importance of partnerships among a variety of public and 
private actors. This is evidenced in the integration of 
reporting hotlines, data, and information sharing between law 
enforcement of various jurisdictions, and collaboration between 
agencies of differing Governments.\28\ \29\ \30\ The nonprofit 
National Center for Missing and Exploited Children (NCMEC) 
serves as a clearinghouse for many efforts by operating its 
CyberTipline and distributing information to law enforcement. 
As my earlier testimony highlighted, such collaboration is 
critical in combating trafficking as well.
---------------------------------------------------------------------------
     \28\ Williams, N. (1999). ``The Contribution of Hotlines to 
Combating Child Pornography on the Internet''. London: Childnet 
International. Retrieved from https://www.childnet.com/ufiles/
combating-child-pornography.pdf.
     \29\ Schell, B.H., Martin, M.V., Hung, P.C., and Rueda, L. (2007). 
``Cyber Child Pornography: A Review Paper of the Social and Legal 
Issues and Remedies--and a Proposed Technological Solution''. 
Aggression and Violent Behavior, 12(1), 45-63. Retrieved from https://
www.researchgate.net/publication/222417484-Cyber-child-pornography-A-
review-paper-of-the-social-and-legal-issues-and-remedies-and-a-
proposed-technological-solution.
     \30\ Akdeniz, Y. (1997). ``Governance of Pornography and Child 
Pornography on the Global Internet: A Multi-Layered Approach''. Law and 
the Internet: Regulating Cyberspace, 223-241. Retrieved from https://
www.cyber-rights.org/governan.htm.
---------------------------------------------------------------------------
    Second, recent technological developments require dynamic 
and adaptive approaches to combat both online child pornography 
and facilitation of trafficking. Expanded digital child 
pornography requires law enforcement to proactively gather 
intelligence on advances in technology in order to combat it. 
\31\ Efforts to combat the online availability of child 
pornography have included machine learning and other uses of 
large and often untapped swaths of data. \32\ For example, 
researchers from Oak Ridge National Laboratory and the 
University of North Carolina-Wilmington have collaborated with 
the Knoxville, Tennessee, Police Department to develop a 
digital forensic tool which uses facial analytics and other 
technologies to scan computers and memory devices for child 
pornography. \33\ A parallel ``proactive approach'' in 
combating human trafficking involves investment in 
infrastructure to measure and respond to the changing landscape 
of human trafficking related financial transactions.
---------------------------------------------------------------------------
     \31\ Eggestein, J.V., and Knapp, K.J. (2014). ``Fighting Child 
Pornography: A Review of Legal and Technological Developments''. 
Journal of Digital Forensics, Security and Law, 9(4), 3. Retrieved from 
https://commons.erau.edu/cgi/
viewcontent.cgi?article=1191&context=jdfsl.
     \32\ Keller, M.H., and Dance, G.J.X. (2019, September 28th). ``The 
Internet Is Overrun With Images of Child Sexual Abuse. What Went 
Wrong?'' The New York Times. Retrieved from https://www.nytimes.com/
interactive/2019/09/28/us/child-sex-abuse.html?smid=nytcore-ios-share.
     \33\ Ricanek, Jr., K., and Boehnen, C. (2012). ``Facial Analytics: 
From Big Data to Law Enforcement''. Computer, 45(9), 95-97. Retrieved 
from https://www.researchgate.net/publication/258019814-Facial-
Analytics-From-Big-Data-to-Law-Enforcement.
---------------------------------------------------------------------------
    Unfortunately, the fight against images of child sexual 
abuse raises notes of caution. Despite high-profile legislation 
\34\ and laudable attempts to cooperate across sectors to 
combat the production and distribution of these images, the 
scale of this problem has continued to grow. Recent analysis by 
researchers from Google, NCMEC and Thorn has documented the 
exponential growth in reports of these images and the inability 
of law enforcement to keep up with reports. \35\ These 
experiences point to the importance of continuing investment in 
technology to adapt to a changing landscape. This technology is 
necessary not only to uncover potential instances of crimes, 
but also to prioritize law enforcement response to those 
potential instances. \36\ Absent this continuing investment and 
prioritization, the scale of opportunities for exploitation 
presented by the evolving internet will eclipse law enforcement 
ability to respond to instances of either child sexual abuse or 
trafficking.
---------------------------------------------------------------------------
     \34\ Providing Resources, Officers, and Technology To Eradicate 
Cyber Threats to Our Children Act of 2008 or the PROTECT Our Children 
Act of 2008.
     \35\ Bursztein, E., Clarke, E., DeLaune, M., Elifff, D.M., Hsu, 
N., Olson, L., and Bright, T. (2019, May). ``Rethinking the Detection 
of Child Sexual Abuse Imagery on the Internet''. In The World Wide Web 
Conference (pp. 2601-2607). ACM. Retrieved from https://ai.google/
research/pubs/pub48118.
     \36\ Keller, M.H., and Dance, G.J.X. (2019, September 28th). ``The 
Internet Is Overrun With Images of Child Sexual Abuse. What Went 
Wrong?'' The New York Times. Retrieved from https://www.nytimes.com/
interactive/2019/09/28/us/child-sex-abuse.html?smid=nytcore-ios-share. 
Without research-based prioritization, resource constraints will 
necessitate that law enforcement prioritize using other ad hoc rules. 
For example, Keller and Dance's recent investigative article reported 
that the FBI focuses only on images of infants and toddlers when 
reviewing tips from NCMEC.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM CRYSTA PRICE

Q.1. As you mentioned in your written testimony, in 2017 the 
Financial Crimes Enforcement Network (FinCEN) added a box to 
indicate suspicion of human trafficking to suspicious activity 
reports (SARs) filed pursuant to the Bank Secrecy Act
    Can you describe how the additional data collected from 
this change may be used to identify instances of human 
trafficking that would not otherwise have been uncovered?

A.1. The formal inclusion of a human trafficking suspicion 
indicator to the FinCEN's SARs has two primary benefits. First, 
it has allowed for more precise measurements of suspicion of 
human trafficking. Prior to the addition of the human 
trafficking box, various free text phrases entered in SARs were 
often difficult to quantify and interpret. Hundreds of 
depository institutions used variations of ``trafficking'' in 
2014, but these included references to ``cigarette 
trafficking'', ``drug trafficking'', ``sex trafficking'', or 
simply the word ``trafficking'' alone. \1\ Since adding a box 
to indicate suspicion of human trafficking to SARs, reports are 
not only more numerous but also more precisely defined.
---------------------------------------------------------------------------
     \1\ Financial Crimes Enforcement Network. (2015). ``SAR Stats 
Technical Bulletin October 2015''. [Technical Bulletin]. Washington, 
DC: U.S. Department of the Treasury. Retrieved from https://
www.fincen.gov/sites/default/files/sar-report/SAR-Stats-2-FINAL.pdf.
---------------------------------------------------------------------------
    Second, including an indicator for human trafficking 
suspicion in SARs could highlight instances of trafficking that 
otherwise would escape law enforcement attention. For instance, 
other testimony has indicated that the FBI conducts analysis of 
SARs on many topics, including human trafficking. \2\ However, 
I am not personally aware of any human trafficking 
investigation that began because of a SAR. Because of the 
absence of consistent mechanisms for feedback from law 
enforcement on the utility and outcomes of SARs, it is not 
possible to systematically assess their impact on human 
trafficking (or other) investigations. \3\ Additionally, we 
have no evidence of the degree to which the addition of the 
checkbox for human trafficking has resulted in accurate 
assessments by those checking it. It is likely, given the 
imprecision of any set of red flags for trafficking, that a 
substantial number of human trafficking SARs are false 
positives.
---------------------------------------------------------------------------
     \2\ Combating Money Laundering and Other Forms of Illicit Finance: 
How Criminal Organizations Launder Money and Innovative Techniques for 
Fighting Them, Hearing before the United States Senate Banking 
Subcommittee on National Security, International Trade and Finance, 
Senate, 115th Cong. 4 (2018) (Testimony of Dennis M. Lormel). Retrieved 
from https://www.hsdl.org/?abstract&did=825644.
     \3\ Combating Money Laundering and Other Forms of Illicit Finance: 
How Criminal Organizations Launder Money and Innovative Techniques for 
Fighting Them, Hearing before the United States Senate Banking 
Subcommittee on National Security, International Trade and Finance, 
Senate, 115th Cong. 4 (2018) (Testimony of Dennis M. Lormel). Retrieved 
from https://www.hsdl.org/?abstract&did=825644.

Q.2. In addition to removing obstacles to the access and 
sharing of data, are there any other data points that could be 
collected by Government agencies that would be helpful in 
---------------------------------------------------------------------------
detecting and preventing instances of human trafficking?

A.2. Changes to FinCEN's SAR could enhance detection and 
prevention of human trafficking. One relatively small tweak 
would involve including structured fields for users to select 
the red flags they have observed which led to a suspicion of 
human trafficking. These fields could directly reflect FinCEN's 
guidance on red flags, providing more detailed information for 
investigators looking into a SAR. Our law enforcement partners 
have told us of the usefulness of their interactions with Bank 
Secrecy Act/Anti Money Laundering (BSA/AML) investigators with 
local banks once human trafficking investigations are underway. 
By collecting additional data within the FinCEN SAR, this 
useful information would be frontloaded so it could more easily 
spark investigations. A second, more ambitious change to the 
SAR system would incorporate data on investigatory outcomes, 
such as whether an investigation was initiated by a law 
enforcement agency as a result of a report and whether the 
investigation discovered further evidence of human trafficking. 
FinCEN data collection that included specific red flags 
observed and investigatory outcomes would improve each step of 
the FinCEN process. Research on this data could improve the 
efficiency of investigations by revealing new patterns in human 
trafficking that investigators could pursue. This research also 
could be used to refine the guidance on red flags that FinCEN 
provides financial institutions. The benefits of this change 
would not be limited to combating human trafficking. An 
incorporation of outcomes has been suggested by policymakers 
and researchers in order to improve the efficacy of SARs in 
combating all the crimes they encompass.\4\ \5\
---------------------------------------------------------------------------
     \4\ Combating Money Laundering and Other Forms of Illicit Finance: 
How Criminal Organizations Launder Money and Innovative Techniques for 
Fighting Them, Hearing before the United States Senate Banking 
Subcommittee on National Security, International Trade and Finance, 
Senate, 115th Cong. 4 (2018) (Testimony of Dennis M. Lormel). Retrieved 
from https://www.hsdl.org/?abstract&did=825644.
     \5\ Axelrod, R.M. (2017). ``Criminality and Suspicious Activity 
Reports''. Journal of Financial Crime, 24(3), 461-471. Retrieved from 
https://www.emerald.com/insight/content/doi/10.1108/JFC-03-2017-0019/
full/html.
---------------------------------------------------------------------------
    Outside of the financial sector, it is also critical that 
data from law enforcement agencies accurately track the 
criminal justice response to human trafficking. One step toward 
this goal was taken by the addition of human trafficking 
offenses to the FBI's Uniform Crime Reporting (UCR) System. 
However, UCR statistics underestimate the extent of trafficking 
offenses because law enforcement officers are not trained to 
recognize it, because other offenses rather than trafficking 
are tracked in agency records management systems and because 
specialized human trafficking investigators seek an unusually 
high bar of evidence before applying the label of human 
trafficking to an incident. \6\ While each law enforcement 
agency sets its own policies, Federal grant funds can finance 
the updates to data systems necessary for tracking trafficking 
and incentivize States and localities to better track criminal 
justice responses to human trafficking by rewarding training on 
human trafficking and increased response documented through 
records management systems.
---------------------------------------------------------------------------
     \6\ Farrell, A., Dank, M., Kafafian, M., Lockwood, S., Pfeffer, 
R., Hughes, A., and United States of America. (2018). ``Capturing Human 
Trafficking Victimization Through Crime Reporting''. United States 
Department of Justice, National Institute of Justice (NCJ-252520, 
Washington, DC). Retrieved from https://www.ncjrs.gov/pdffiles1/nij/
grants/252520.pdf.
---------------------------------------------------------------------------
    Beyond simply tracking the incidence of trafficking within 
records management systems, law enforcement agencies should 
collect structured data in the course of the investigation that 
helps reveal the particulars of this crime. For example, data 
associated with victims could include the age of initial 
recruitment, the modes by which they were advertised (e.g., 
specific websites or locales), relationships to trafficker(s), 
and geographic locations in which they were compelled to sell 
sex. Data associated with sex buyers could include the means by 
which they made contact with a victim and their modes of 
payment. Data on traffickers should include detailed 
information on both initial recruitment (how they made contact 
with and began working with those they trafficked) and 
continued exploitation (e.g., weapons or threats used, types of 
fraud). In each case, data systems should allow traffickers to 
be associated with data from their known victims. Furthermore, 
by linking data about victims and traffickers with other 
criminal justice data, the overlap between trafficking and 
other victimizations could be understood. Researchers working 
with localities across the country can then begin to use this 
criminal justice data to systematically understand the 
correlates of human trafficking, leading to improved ability to 
detect and prosecute it.

Q.3. Based on your research and the human trafficking cases 
that you have studied, do you believe that the 2014 red flag 
guidance publicized by FinCEN is comprehensive? Are there any 
other red flags that you would recommend be added to the 
guidance in the future?

A.3. The purpose of FinCEN's red flag guidance is to help 
financial institutions identify situations of potential 
trafficking and file a SAR. There are three main areas in which 
this can be improved by: (1) improving the red flags, (2) using 
the red flags on a more comprehensive dataset, (3) improving 
the threshold upon which the combination of red flags generates 
a SAR.

Improving the Red Flags

    Additional observable indicators from existing screening 
tools that could supplement the red flags include:\7\ \8\
---------------------------------------------------------------------------
     \7\ HTI Labs. (2019). ``Providing Avenues for Victim 
Empowerment''. Identifying and Responding to Human Trafficking in 
Nebraska. Retrieved from https://pave-learn.htilabs.org/.
     \8\ Vera Institute of Justice. (2014). ``Screening for Human 
Trafficking Guidelines for Administering the Trafficking Victim 
Identification Tool (TVIT)'' (Report. No. 246713). Retrieved from 
https://www.ncjrs.gov/pdffiles1/nij/grants/246713.pdf.

    Customer shows signs of physical abuse, 
---------------------------------------------------------------------------
        confinement, or neglect

    Customer seems to live/sleep at their place of work

    Customer travels frequently or makes frequent use 
        of hotels or housing rentals (e.g., Airbnb) in ways 
        that are unexpected given their employment \9\
---------------------------------------------------------------------------
     \9\ The hospitality industry has been transformed by the 
convergence of private accommodation and hotels (e.g., Airbnb). Sex 
trafficking victims often move between numerous cities and must use 
local lodging where they can set up their operations. To capture this, 
red flags should not be limited to traditional hotels.

    Customer sounds scripted or inconsistent in 
---------------------------------------------------------------------------
        describing current situation or history

    FinCEN's guidance already explicitly notes that no red flag 
alone is a clear indicator and that red flags could be used in 
combination with factors such as the customer's profile. The 
same caveats apply to the above.

Expanding the Dataset

    A more effective way to improve the FinCEN red flag 
guidance, however, is not from the inclusion of additional red 
flags, but from the inclusion of more comprehensive data 
sources. For example, FinCEN might provide guidance to 
financial institutions on potential external data sources that 
have been found to be useful to supplement the financial data 
they have on a customer. This obviously requires partnerships 
that FinCEN could consider facilitating.
    As David Murray's testimony notes, trafficking-related 
transactions tend to be small and below the SARs threshold. 
Further, trafficking transactions are taking place in arenas 
that are often outside of the reach of SARs through mechanisms 
such as prepaid cards and cryptocurrencies. \10\ Thus, while 
incorporating these transactions into the SARs process could 
help discern between trafficking and other illicit activity, we 
should be aware of these embedded limitations.
---------------------------------------------------------------------------
     \10\ Human Trafficking and Its Intersection with the Financial 
System, Hearing before the United States Senate Banking Subcommittee on 
National Security, International Trade and Finance, Senate, 116th Cong. 
(2019) (Testimony of David Murray). Retrieved from https://
www.banking.senate.gov/imo/media/doc/Murray%20Testimony%209-3-2019.pdf.
---------------------------------------------------------------------------

Improving the Threshold

    The guidance already explicitly notes that no red flag 
alone is a clear indicator and that red flags could be used in 
combination with factors such as the customer's profile. In 
other words, it is less important that financial institutions 
include ``frequent travel'' as a red flag than that their 
analytics reflect the fact that this would be more indicative 
of trafficking for a young person with no apparent means to 
enable travel than for a person in sales for a legitimate 
enterprise. FinCEN could consider putting out additional 
guidance elaborating on this point by showing examples in which 
financial institutions have used data analysis beyond a simple 
additive red flag approach or successfully collaborated with 
law enforcement or researchers to identify suspicious 
transactions or accounts. FinCEN could also consider directly 
partnering with financial institutions and researchers to 
perform analysis to identify appropriate thresholds and then 
publish these findings to the wider community.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                       FROM CRYSTA PRICE

Q.1. As stated in your testimony, the U.S. Financial Crimes 
Enforcement Network (FinCEN) updated their Suspicious Report 
Activity (SAR) system in 2017 to include human trafficking as a 
specific activity type. Are there other types of data that law 
enforcement is currently lacking that FinCEN can look to 
include in its SAR system? Are there specific types of data 
that would help FinCEN discern between trafficking and other 
illicit activity?

A.1. To understand data that law enforcement is currently 
lacking, we asked our law enforcement partners for their 
insights on ways in which FinCEN's SAR system and financial 
data collection more generally could be improved. Speaking to 
the current system, current or former representatives of both 
the Department of Homeland Security and the Federal Bureau of 
Investigation noted that their working relationships with Bank 
Secrecy Act investigators have been very helpful in cases which 
rely on information from local banks. Despite this, our 
partners noted areas where FinCEN's SAR system and financial 
data collection efforts more generally could be improved. 
First, they highlighted the dearth of data on transactions 
using virtual and cryptocurrency and prepaid gift or debit 
cards, tools which traffickers utilize for financial 
transactions. \1\ Our own experience shows that combining 
FinCEN data with data from outside the financial sector (e.g., 
data from the criminal justice system or commercial sex market) 
would be a very powerful tool to help distinguish trafficking 
from other types of crime.
---------------------------------------------------------------------------
     \1\ Following the Money: How Human Traffickers Exploit U.S. 
Financial Markets, Hearing before the United States House Financial 
Services Subcommittee on Oversight and Investigations, House, 115th 
Cong. (2018) (Testimony of Cyrus R. Vance, Jr.). Retrieved from https:/
/financialservices.house.gov/uploadedfiles/01.30.2018-cyrus-vance-
testimony.pdf.
---------------------------------------------------------------------------
    Second, beyond incorporating new types of transactions and 
currencies, changes to FinCEN's SAR could enhance detection and 
prevention of human trafficking. Among such changes, FinCEN 
could expand its guidance on red flags to include additional 
observable indicators from existing screening tools such as:\2\ 
\3\
---------------------------------------------------------------------------
     \2\ HTI Labs. (2019). ``Providing Avenues for Victim 
Empowerment''. Identifying and Responding to Human Trafficking in 
Nebraska. Retrieved from https://pave-learn.htilabs.org/.
     \3\ Vera Institute of Justice. (2014). ``Screening for Human 
Trafficking Guidelines for Administering the Trafficking Victim 
Identification Tool (TVIT)'' (Report. No. 246713). Retrieved from 
https://www.ncjrs.gov/pdffiles1/nij/grants/246713.pdf.

    Customer travels frequently or makes frequent use 
        of hotels or housing rentals (e.g., Airbnb) in ways 
        that are unexpected given their employment \4\
---------------------------------------------------------------------------
     \4\ The hospitality industry has been transformed by the 
convergence of private accommodation and hotels (e.g., Airbnb). Sex 
trafficking victims often move between numerous cities and must use 
local lodging where they can set up their operations. To capture this, 
red flags should not be limited to traditional hotels.

    Customer shows signs of physical abuse, 
---------------------------------------------------------------------------
        confinement, or neglect

    Customer sounds scripted or inconsistent in 
        describing current situation or history

    Customer seems to live/sleep at their place of work

    FinCEN also could more strongly emphasize the need to rely 
on combinations of red flags. The FinCEN guidance already 
explicitly notes that no red flag alone is a clear indicator 
and that red flags could be used in combination with factors 
such as the customer's profile. Pursuing this combinatorial 
strategy could help to distinguish trafficking from other types 
of crimes. Moreover, it could help to reduce the number of 
false positives provided to law enforcement.
    A third relatively small tweak would involve including 
structured fields reflecting the red flags observed which led 
to a suspicion of human trafficking. These fields could 
directly reflect FinCEN's guidance on red flags, providing more 
detailed information for investigators looking into a SAR. By 
collecting additional data within the FinCEN SAR, communication 
of this useful information would be frontloaded so it could 
more easily spark investigations.
    A fourth, more ambitious change to the SAR system would 
incorporate data on investigatory outcomes, such as whether an 
investigation was initiated by a law enforcement agency as a 
result of a report and whether the investigation discovered 
further evidence of human trafficking. FinCEN data collection 
that included specific red flags observed and investigatory 
outcomes would improve each step of the FinCEN process. 
Research on this data could improve the efficiency of 
investigations by revealing new patterns in human trafficking 
that investigators could pursue. This research also could be 
used to refine the guidance on red flags that FinCEN provides 
financial institutions to increasingly reduce false positives 
and better generate trafficking leads for law enforcement. The 
benefits of this change would not be limited to combating human 
trafficking. An incorporation of outcomes has been suggested by 
policymakers and researchers in order to improve the efficacy 
of SARs in combating all the crimes they encompass.\5\ \6\
---------------------------------------------------------------------------
     \5\ Combating Money Laundering and Other Forms of Illicit Finance: 
How Criminal Organizations Launder Money and Innovative Techniques for 
Fighting Them, Hearing before the United States Senate Banking 
Subcommittee on National Security, International Trade and Finance, 
Senate, 115th Cong. 4 (2018) (Testimony of Dennis M. Lormel). Retrieved 
from https://www.hsdl.org/?abstract&did=825644.
     \6\ Axelrod, R.M. (2017). ``Criminality and Suspicious Activity 
Reports''. Journal of Financial Crime, 24(3), 461-471. Retrieved from 
https://www.emerald.com/insight/content/doi/10.1108/JFC-03-2017-0019/
full/html.

Q.2. If there is consensus that greater data-sharing between 
different sectors is necessary to combating trafficking, what 
---------------------------------------------------------------------------
barriers exist to forging more public-private partnerships?

A.2. Barriers to Effective Public-Private Partnerships--In 
general, there are numerous barriers to forging effective 
public-private partnerships. Poor communication, ill-defined 
roles between partners, and a range of logistical and 
implementational issues can dampen the impact of public-private 
partnerships.\7\ \8\ \9\ Within the context of trafficking, 
forging effective public-private relationships can require 
overcoming a number of unique hurdles. Issues surrounding 
policy effectiveness, definitional confusion, and the scarcity 
of empirical evaluation of anti-trafficking activities have 
been demonstrated to be straining relationships with anti-
trafficking organizations.\10\
---------------------------------------------------------------------------
     \7\ Lin, V., King, C., Maxwell, K., and Shaw, S. (2018). 
``Opportunities Through State Agency Research Partnerships for Using 
Administrative Data To Support Early Care and Education''. (Report No. 
2018-53). Washington, DC: Office of Planning, Research and Evaluation, 
Administration for Children and Families, U.S. Department of Health and 
Human Services. Retrieved from https://www.acf.hhs.gov/sites/default/
files/opre/opportunities-state-agency-research-partnerships-admin-6-18-
18-b508.pdf.
     \8\ Klijn, E.H., and Teisman, G.R. (2003). ``Institutional and 
Strategic Barriers to Public-Private Partnership: An Analysis of Dutch 
Cases''. Public Money and Management, 23(3), 137-146. Retrieved from 
https://www.tandfonline.com/doi/abs/10.1111/1467-9302.00361.
     \9\ Roehrich, J.K., Lewis, M.A., and George, G. (2014). ``Are 
Public-Private Partnerships a Healthy Option? A Systematic Literature 
Review''. Social Science and Medicine, 113, 110-119. Retrieved from 
https://www.sciencedirect.com/science/article/pii/S0277953614002871.
     \10\ Davy, D. (2014). ``Understanding the Complexities of 
Responding to Child Sex Trafficking in Thailand and Cambodia''. 
International Journal of Sociology and Social Policy, 34(11/12), 793-
816. Retrieved from https://www.researchgate.net/publication/289696878-
Understanding-the-complexities-of-responding-to-child-sex-trafficking-
in-Thailand-and-Cambodia.
---------------------------------------------------------------------------
    Our experience with the Nebraska Human Trafficking 
Taskforce (NHTTF) has revealed some challenges in forging 
public-private partnerships. The most persistent challenge has 
been sustainability. Structurally, there is a need for a 
clearly delineated formal organization. Institutional structure 
needs to be laid out with clear lines delineating 
responsibilities vested in the task force and clear lines of 
communication with decision maker. Organizationally, there 
needs to be a decision maker or decision-making capacity. 
Financially, there is a need for sustainable funding levels. 
Most task forces are hitting walls that span beyond their 
specific issue. Solving these challenges takes time and a long-
term commitment that includes some discretionary funding 
available to the decision maker.
    When the only source of the task force funding comes from a 
single Federal or State grant, one potential pitfall is a 
narrow focus on meeting grant requirements rather than solving 
problems. This is even more problematic when the grant 
incentivizes the wrong thing. For example, when a grant 
encourages a focus on increasing the number of arrests, we have 
found that this often results in victims being arrested in 
``low-hanging fruit'' sting operations.
    Our Task Force has repeatedly encountered challenges 
created by a lack of information sharing. This results in 
victims retelling the same story, resharing the same 
information, and filling out the same documentation multiple 
times. At the same time, too often, we find that not enough is 
done with this information. There is simultaneously far too 
much victim contact and far too many occurrences of victims 
falling through the cracks. Furthermore, the system is 
overburdened and unable to absorb these inefficiencies.
    Resolving impediments to information sharing requires a 
concerted effort to get beyond the inevitable barriers to 
information sharing across agencies in order to broker a 
solution that solves the particular need everyone is attempting 
to address. For example, solving for these issues with our 
screening and reporting process requires addressing the 
information sharing restrictions contained in VAWA. Brokering 
solutions across multiple agencies and activities requires that 
there be champions in each of these agencies and activities. 
One problem that we face is that we don't have the financial 
industry represented on the Task Force, so efforts to partner 
with banks and financial institutions have been greatly 
hindered by the inability to take on a proactive approach.
    A final major challenge is the issue of cynicism. Most of 
the people engaged in the effort against human trafficking have 
sat on many task forces in their careers. Their experience is 
that there is a lot of energy at first, but ultimately little 
is accomplished before the initiative ``flames out.'' To 
overcome this, people need to feel that conditions underlying 
this particular effort are sufficiently different from past 
failed attempts at partnership.

Overcoming Barriers to Effective Public-Private Partnerships

    None of this is to say that the barriers to public-private 
partnerships are insurmountable. Barriers to effective public-
private partnerships can be overcome when partners have a high 
degree of trust in one another and the management of the 
partnership, as well as a mutual understanding of each 
partner's role and area of expertise within the 
partnership.\11\ \12\ \13\
---------------------------------------------------------------------------
     \11\ Warsen, R., Nederhand, J., Klijn, E.H., Grotenbreg, S., and 
Koppenjan, J. (2018). ``What Makes Public-Private Partnerships Work? 
Survey Research Into the Outcomes and the Quality of Cooperation in 
PPPs''. Public Management Review, 20(8), 1165-1185. Retrieved from 
https://www.tandfonline.com/doi/pdf/10.1080/
14719037.2018.1428415?needAccess=true.
     \12\ Shaw, S.H., Lin, V., and Maxwell, K.L. (2018, June). 
``Guidelines for Developing Data Sharing Agreements To Use State 
Administrative Data for Early Care and Education Research'' (Report No. 
2018-67). Washington, DC: Office of Planning, Research and Evaluation, 
Administration for Children and Families, U.S. Department of Health and 
Human Services. Retrieved from https://www.acf.hhs.gov/sites/default/
files/opre/guidelines-for-developing-data-sharing-agreements-508-7-16-
18-508.pdf.
     \13\ Lin, V., King, C., Maxwell, K., and Shaw, S. (2018). 
``Opportunities Through State Agency Research Partnerships for Using 
Administrative Data To Support Early Care and Education''. (Report No. 
2018-53). Washington, DC: Office of Planning, Research and Evaluation, 
Administration for Children and Families, U.S. Department of Health and 
Human Services. Retrieved from https://www.acf.hhs.gov/sites/default/
files/opre/opportunities-state-agency-research-partnerships-admin-6-18-
18-b508.pdf.
---------------------------------------------------------------------------
    In addition to trust, the degree to which Nebraska has 
achieved success in its anti-trafficking efforts results from a 
number of factors associated with effective public-private 
partnerships. Among the most important is the political will to 
work together across differing agendas. While trafficking is 
something everyone wants to do something about, it is important 
to avoid getting distracted by connected issues on which 
consensus is not possible. For example, there are many people 
who want to deal with the larger issue of prostitution, upon 
which there are starkly differing views. We have found success 
by focusing on trafficking, the element of the commercial sex 
industry that involves force, fraud, coercion, and/or minors.
    Another important key to success is that there are 
champions within agencies who are empowered to represent their 
agencies. These are the individuals on the front lines of the 
issue within an agency, who are often doing most of the day-to-
day work on a task force. In order to be effective, they must 
have genuine buy-in from agency heads. This gives champions 
access to agency decision makers and empowers them to have the 
confidence to try something new and to avoid getting beaten 
down by cynicism. It also provides a important conduit through 
which to coordinate Task Force goals with State agency 
procedures, policy, and legislative initiatives.
    Government funding is not always sufficient. It is 
important that there be a commitment to the effort from private 
sector local funders and coordinating agencies. In the Omaha 
metropolitan area, local philanthropy has funded agents of 
change, such as the Women's Fund of Omaha, to help sustain the 
efforts of the Task Force by acting in a full-time coordination 
capacity. This has been backed up by funding support to 
nonprofit service providers to help build capacity. Their 
involvement has helped to ensure that public and private 
entities have confidence that the human trafficking effort is 
going to be a sustained effort in which they can confidently 
invest their time and resources.
    Private funding has also been important in putting in place 
persons whose positions have been funded to solve the specific 
problems that emerge. While the NHTTF Federal grant funded 
coordinator positions, local donors funded additional full-time 
positions. These persons need access to the decision makers, so 
that solutions can stick. They also need be viewed as neutral, 
objective actors in order to avoid the inevitable partisanship 
wars. And they need to effectively assess and leverage the 
community's assets. For example, we have ambitious individuals 
in law enforcement all across the State who are committed to 
this issue; our Task Force leadership recognized this and 
restructured to better empower those assets by asking them to 
lead important committees.
    The inclusion of HTI Labs, a socially responsible AI and 
tech research company, as an active full-time member of the 
NHTTF team has been an important key to success as well. It has 
permitted the Task Force to integrate data, research, and 
technology in all its initiatives and decisions. This has 
ensured that the efforts of the task force are data informed, 
and it has provided data and support to forward-leaning 
champions within an agency attempting to make change. Just as 
importantly, it has ensured that new and innovative ideas are 
put forward and implemented.
    For example, our research showing 900 individuals 
advertised in Nebraska each month on Backpage helped galvanize 
support needed for State-level policymaking and fundraising 
efforts. Ultimately, decision makers want to see the data 
behind what you're trying to do, why it will work, what it will 
take, and how you will know if it's working or not working. 
This requires a systematic but phased approach that brings in 
data and research at every step. Without having data and 
research as a partner at the table, this can be tough, because 
task force partners are relying on there being some existing 
data or research out there. Having these capacities on the team 
also permitted the development and implementation of a number 
of innovative ideas, to include the tools and policies 
described above.

PayPal Data Integration Pilot Project as Example of an Effective 
        Public-Private Partnership

    As a concrete example of our successes in overcoming 
barriers to effective collaboration in public-private 
partnerships involving financial data specifically, we can 
point to an ongoing pilot test and controlled experiment 
undertaken by Homeland Security Investigations (HSI), PayPal, 
and HTI Labs.
    Having developed a solid working relationship, an HSI agent 
with whom we had worked on a major national case approached us 
to build an investigative platform that will centralize all 
known sex trafficking investigative information. At the same 
time, PayPal approached us to collaborate with their data 
science team to better identify trafficking for law 
enforcement. With these new opportunities, we developed a 
concept for integrating PayPal data and HSI data to better 
identify the real people connected to the online commercial sex 
data which we use. The motivation for this project relied on 
the understanding that data integration and insight from 
previously disparate data sources allows for the identification 
of trafficking in a way that any single set of data cannot and 
makes the difference between an actionable investigation and a 
dead-end lead.
    While the pilot is still ongoing, many of the leads have 
been able to be linked to PayPal accounts. These initial 
successes help show how barriers to public-private partnerships 
can be overcome. HSI, PayPal, and HTI Labs employed a mutual 
understanding of each partner's role and area of expertise 
within the partnership. Further, the partnership benefited from 
the inclusion of data, research, and technology as a driving 
force of the team, allowing for new and innovative ideas to be 
put forward and implemented. This pilot test illustrates the 
promise of greater cooperation and information sharing between 
law enforcement, financial institutions, and research centers.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SASSE
                       FROM DAVID MURRAY

Q.1. We know that some instances of human trafficking involve 
sophisticated transnational criminal organizations, while other 
cases can boil down to exploitation of a victim by a romantic 
partner.
    What's our best understanding of what portion of human 
trafficking do you feel is carried out by sophisticated 
criminal networks relative to smaller enterprises?

A.1. Sophisticated criminal networks play a large role in human 
trafficking, judging from International Labour Organization 
reporting that estimates that human trafficking generates 
$150.2 billion in annual profits, \1\ and a report published by 
the Financial Action Task Force (FATF). \2\
---------------------------------------------------------------------------
     \1\ International Labour Office, ``Profits and Poverty: The 
Economics of Forced Labour'', May 20, 2014, p. 13, https://www.ilo.org/
wcmsp5/groups/public/-ed_norm/-declaration/documents/publication/
wcms_243391.pdf.
     \2\ FATF, ``Financial Flows From Human Trafficking'', July 2018, 
https://www.fatf-gafi.org/media/fatf/content/images/Human-Trafficking-
2018.pdf.

A.2. How does the U.S. Government's efforts to use its anti- 
money-laundering regime to target human traffickers compare to 
---------------------------------------------------------------------------
the efforts and toolkits of other countries?

A.2. The United States has ``highly developed investigative 
capabilities to identify and investigate'' money laundering, 
according to the Financial Action Task Force (FATF). \3\ On 
average, the United States charges about 2,500 persons with 
money laundering and wins more than 1,200 money-laundering 
convictions each year, \4\ making U.S. investigators and 
prosecutors much more active than their foreign counterparts.
---------------------------------------------------------------------------
     \3\ FATF, ``United States Mutual Evaluation Report'', December 
2016, available at http://www.fatf-gafi.org/media/fatf/documents/
reports/mer4/MER-United-States-2016.pdf.
     \4\ FATF, ``United States Mutual Evaluation Report'', December 
2016, available at http://www.fatf-gafi.org/media/fatf/documents/
reports/mer4/MER-United-States-2016.pdf.
---------------------------------------------------------------------------
    Our investigators and prosecutors are effective despite 
critical gaps in our anti- money-laundering regime, most 
notably surrounding company formation. Anonymous companies are 
a critical vulnerability in our financial system that Congress 
should address.

A.3. How has the proliferation of diverse digital currencies 
changed the nature of money laundering, specifically by large-
scale human trafficking networks?

A.3. Digital currencies have not yet been a game changer for 
money launderers because they are not widely accepted. However, 
digital currencies' potential for anonymity and near-
instantaneous, irrevocable settlement makes them attractive to 
criminals, and they have also become payment methods of last 
resort. For example, human traffickers have been forced to use 
digital currencies to purchase advertisements because banks and 
other financial institutions refuse to process those payments. 
\5\
---------------------------------------------------------------------------
     \5\ Cyrus Vance, House Financial Services Committee, January 30, 
2018.

A.4. While there have been reports that finances of the human 
trafficking business is often handled in cash, what portion of 
this cash do you think is converted to digital currencies--at 
---------------------------------------------------------------------------
least for some period of time?

A.4. Digital currencies have been most often used by human 
traffickers to purchase advertisements, according to law 
enforcement, \6\ and advertising probably makes up only a small 
portion of human trafficking organizations' operating expenses.
---------------------------------------------------------------------------
     \6\ Cyrus Vance, House Financial Services Committee, January 30, 
2018.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM DAVID MURRAY

Q.1. New and emerging financial technologies have created 
unique challenges in identifying and tracing illicit finance 
activities. In your testimony, you identified some legislative 
solutions that the Government can take. Aside from those 
solutions, how can financial institutions and law enforcement 
agencies adapt on their own and improve their investigative 
methods do deal with the transparency issued posed by these 
technologies?

A.1. Financial institutions should design new products with 
transparency as a core feature. New payments products that are 
inherently more transparent than existing payments products 
will be more efficient than existing payments products because 
information about the originator, beneficiary, and purpose of 
the payment will be readily available to each financial 
institution in a payment chain. When more information about a 
payment is readily available, fewer payments will be suspended 
as financial institutions seek more information about the 
parties to a payment or the purpose of a payment.
    Law enforcement agencies have been extremely adaptive, but 
financial products that are inherently nontransparent will 
continue to pose challenges regardless of how creative our 
investigators are.

A.2. In your written testimony, you listed three financial 
products services that were banned due to the level of risk 
they pose to financial transparency: bearer shares, shell 
banks, and anonymous accounts. Are there any other types of 
financial instruments or entities that you believe should be 
banned due to their riskiness and lack of transparency?

A.2. We should also ban anonymous companies, as many other 
countries around the world already have. Anonymous companies 
are a critical vulnerability in our financial system that bad 
actors can exploit to undermine our financial transparency 
laws, campaign finance laws, and foreign investment laws.

A.3. Based on your research and the human trafficking cases 
that you have studied, do you believe that the red flag 
guidance publicized by FinCEN is comprehensive? Are there any 
other red flags that you would recommend be added to the 
guidance in the future?

A.3. FinCEN's human trafficking advisory is very helpful to 
financial institutions. However, FinCEN must take care in 
releasing red flags publicly because advisories also alert 
criminals that FinCEN is aware of patterns in criminal 
behavior. FinCEN might consider releasing additional red flags 
in a secure advisory or under the auspices of the FinCEN 
Exchange Program, which is designed to enhance information 
sharing with financial institutions and may be targeted to the 
financial institutions that are most likely to have information 
that is useful to investigators. \1\
---------------------------------------------------------------------------
     \1\ FinCEN, ``FinCEN Launches `FinCEN Exchange' To Enhance Public-
Private Information Sharing'', Dec. 4, 2017, https://www.fincen.gov/
news/news-releases/fincen-launches-fincen-exchange-enhance-public-
private-information-sharing.
              Additional Material Supplied for the Record
   STATEMENT SUBMITTED BY LOUISE I. SHELLEY, OMER L. AND NANCY HIRST 
 ENDOWED CHAIR DIRECTOR, TERRORISM, TRANSNATIONAL CRIME AND CORRUPTION 
 CENTER, SCHAR SCHOOL OF POLICY AND GOVERNMENT, GEORGE MASON UNIVERSITY
 
 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]