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What are the money laundering risks surrounding migrant smuggling?
Sophie Proctor : April 23, 2022
Migrant smuggling arises due to global conflict, including fleeing from war, political instability, and violence, as well as a yearning for better opportunities and quality of life. This desire is capitalized by smugglers to use migrants as a source of profit, with this illegal industry having estimated annual profits exceeding $10 billion, according to the Financial Action Task Force (FATF). More recently, the disastrous conflict happening in Ukraine has forced citizens to flee and seek refuge in neighboring countries.
Why is migrant smuggling considered a risk for money laundering?
Despite a rise in migrant smuggling in recent years, there is not as much attention towards the risk of money laundering and prosecutions as other forms of financial crime. This is due to a lack of resources and ineffective internal cooperation. There are often difficulties in securing witness testimonies and a reluctance from migrants to testify against smugglers. Due to the sensitive nature of their situation, migrants have a dependence on the smuggler as they seek refuge, but it leaves them vulnerable to exploitation and abuse. This can also blur the lines between migrant smuggling and human trafficking. Consequently, there is a lack of communication and cooperation between the migrants and authorities, so illicit finances continue to flow.
Funds are transferred between jurisdictions, or physically transported via money mules, creating difficulty for authorities to conduct investigations. These payments are often made in cash to avoid detection, or through hawala transactions. This is where migrants visit hawala offices which have received the payment and hold the funds until the smuggling has been confirmed successful, then can release the payment to the smugglers. Communication is often performed through social media or encrypted services, adding further difficulties for tracking financial flows.
Migrant smugglers may also perform trade-based money laundering where they use legal businesses to hide and invest their illicit proceeds as legitimate income. They may even outsource to professional money launderers.
Why is migrant smuggling considered a risk for terrorist financing?
As reported by FATF, there is limited information establishing a clear link between migrant smuggling and terrorist financing, however, there is evidence of terrorists receiving money from smugglers along some of the established migration routes. Additionally, there is the risk of foreign terrorists being integrated into migrant smuggling networks and returning to countries they have been previously forced to leave.
Migrant smuggling may further provide a source of income for terrorist organizations. The FATF highlighted terrorist groups in areas of conflict like Syria and Iraq, were profiting from smuggling migrants into bordering regions like Turkey. The United Nations Security Council has addressed the risk of abuse of migration flows by terrorist groups.
What can be done to counter the threat of money laundering through migrant smuggling?
Migrant smuggling raises challenges for countries to follow the money through the method of communication over various jurisdictions and the use of non-traditional payment transfer systems. However, a better understanding of the methods the smugglers use to transfer proceeds, can help prevent these funds being used for illicit activity.
Increased cooperation between financial institutions across the globe will play a crucial role in unearthing the funds being used for this illicit activity and reporting any suspicious transactions which are linked to migrant smuggling.
Some of the indicators highlighted by the FATF include:
- Use of hawala transaction systems
- Repeated transactions using prepaid cards away from the holder’s domicile
- Transferring remittances through third parties (money mules)
- Immediate liquidation of funds
- Use of legitimate front businesses but majority of payments in cash
- Abnormal payments to accommodation services located close to migrant smuggling routes
- Involved persons with criminal records for migrant smuggling or human trafficking
- No explanation given to the origin of funds
How can AML RightSource help?
With limited statistics and an incomplete picture of migrant smuggling activities, it raises some difficulties. However, the report from the FATF has strengthened some of the actions that need to be taken to address this issue. At AML RIghtSource we can help your business with these actions.
First, ensuring financial service providers have sophisticated and data-driven technology to implement anti-money laundering systems. This may require more employee training, as well as AI-powered technology, such as our QuantaVerse platform, where machine learning can support compliance teams. QuantaVerse offers three distinct AML solutions to ensure effective compliance and investigative processes. These are; false positive reduction, automated investigations and advanced detection. Find out more about how our QuantaVerse platform can help your business overcome risks of money laundering here.
Second, it is imperative to have a risk assessment in place in order to rank and profile clients. Our Financial Crimes Advisory team offer a deep understanding of the AML/BSA requirements, conducting risk assessments so FIs can mitigate risk and overcome challenges. They can also help implement sophisticated technology and AI-powered screening tools to upgrade FIs compliance process.
Third, introducing our Arachnys technology perpetual KYC solutions when monitoring your customers, you can reduce the number of customer touchpoints and lower risk. There are three pillars of data needed to achieve PKYC; self-reported customer data, external data, and transactional data. With these three pillars, your compliance team will have a stronger risk assessment and reduce the risk of money laundering.
And finally, reporting any suspicious activity. This will help to strengthen communication between the private sector and authorities. Read our guidance on writing a useful SAR narrative.