[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
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
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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
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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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.
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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.
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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.
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\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.
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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.
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\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.
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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.
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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.
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\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.
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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.
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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.
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\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.
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------
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.
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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.
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\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.
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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.
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\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.
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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\
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\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\
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\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,
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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\
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\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
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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\
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\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.
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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\
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\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.
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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\
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\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
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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.
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\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.
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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\
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\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
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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.
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\6\ Cyrus Vance, House Financial Services Committee, January 30,
2018.
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------
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\
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\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]