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How chartered accountants can help combat human trafficking

Author: ICAEW Insights

Published: 08 Feb 2023

Accountants must remain vigilant and act swiftly to report suspicious financial activity and prevent human trafficking. There are red flags to look out for, warns one financial intelligence unit.

MOKAS, the Cypriot financial intelligence unit (FIU), has turned to an award-winning ICAEW training film to help in the fight against human trafficking, as the country looks to accountants to help fight a growing problem in the region. The award-winning educational drama was produced last year by ICAEW to strengthen understanding of the role of accountants in identifying the proceeds of people-trafficking activity.

Human trafficking is a global problem, generating an estimated $150bn worldwide per year for organised crime groups, according to the UN agency International Labour Organisation. Cyprus is seen as an entry point to many immigrants in Europe and has therefore been classified as one of the destination countries for victims of trafficking, the majority of whom are trafficked for sexual and labour exploitation. But the war in Ukraine has sparked a refugee crisis in Europe, putting millions more people at risk of trafficking.

Accountants play a role of utmost importance

As part of its strategy to tackle this huge problem, the Institute of Certified Public Accountants of Cyprus (ICPAC) – the responsible supervisory body for anti-money laundering (AML) for the accountancy profession in that country – is educating members on identifying and reporting human trafficking crimes and has hosted two open events to present ICAEW’s educational film, All Too Familiar.

The award-winning film was produced in collaboration with HMRC. It explores the degree of trust still placed in personal and professional relationships and aims to challenge mindsets and provoke discussion on the need for greater professional scepticism when faced with potential money laundering risks. The film is supported by resources to help client-facing staff think about their customer due diligence (CDD) obligations and how to identify money laundering red flags.

“The role of the professional accountant in identifying and reporting financial crime is of the utmost importance,” says Pieris Markou, Chief Executive Officer of Deloitte Cyprus and President of ICPAC. “We have an obligation to keep abreast of developments and to develop the necessary tools that can identify complex structures in the routing of funds which have, as their ultimate aim, the commitment of illegal and criminal actions. The screening of All Too Familiar to our Cypriot ICAEW and ICPAC members and the wider audience goes a long way in raising awareness as well as relevant diligence.”

At the same time, a Strategic Analysis Report published in December 2022 by MOKAS aims to help accountants report suspicious illegal activity in a timely and effective manner in order to counter such crimes.

What can accountants use to help root out criminal funds?

MOKAS is the national centre for receiving, requesting, analysing and disseminating disclosures of suspicious transaction reports (STRs), suspicious activity reports (SARs) and other relevant information concerning suspected money laundering and terrorist financing. Its report outlines red flag indicators and typologies to support all stakeholders, including accountants, in identifying potential instances of human trafficking so the related activity can be reported to the Cypriot FIU via STRs/SARs.

Transactional red flags

These include corporate accounts that do not exhibit normal payroll expenditures such as salaries, payroll taxes or social security contributions). Accountants should also be alerted to payroll costs that are either non-existent or extremely low for the size of the customer’s operations, workforce and/or line of business. Other payroll irregularities that should raise suspicion include the same wages being paid to all staff regardless of role or length of shift, or employee salaries being paid into a shared bank account.

Other red flags highlighted in the report include any information that arises suggesting unacceptable behaviour towards an employee, and cash deposits/withdrawals without economic rationale.

Financial red flags

The report warns that red flag financial indicators and typologies should be considered as holistically inclusive of other relevant intelligence or data available. “Considering all indicators may reveal otherwise unknown links that, taken together, could lead to reasonable grounds to suspect that the transaction consists of proceeds from human trafficking,” the report says.

The report also highlights industries, business types and occupations it considers high risk. They include: agriculture and the livestock sector; night pubs and bars; massage parlours and escort services; and recruiting/staffing agencies.

“The seriousness of the crime of human trafficking cannot be stressed enough. We live in a connected world that cannot ignore the severity of such acts,” Markou adds. “Our collaboration with ICAEW around not only educating our members but also highlighting the humanitarian aspects of such financial crimes plays an important role in our efforts.”

Timing is critical

STRs and SARs are important weapons in the fight against human trafficking, as they raise awareness among all stakeholders to prevent criminals using the financial system to launder their illegal proceeds, and enable law enforcement authorities to launch investigations and criminal proceedings.

The timing of reporting in such cases is extremely important, bearing in mind the nature of such offences. The earlier such activities are identified, the sooner such crimes involving massive human rights violations will be interrupted and further violations will be prevented.

An STR/SAR must be made ‘as soon as is practicable’ after the knowledge or suspicion arises or at the earliest opportunity thereafter, according to the report. It also urges that any suspicions raised must be clearly explained so they can be understood without professional or specialist knowledge.

Reporting entities are advised to include key phrases such as ‘human trafficking’ and ‘trafficking in human beings’ in the narrative when submitting reports. Financial institutions should also include as much relevant and detailed information as permissible to aid the analysis process of the FIU.

Following the money

The MOKAS Strategic Analysis Report was originally developed as part of an Organisation for Security and Cooperation in Europe (OSCE) paper Cyprus committed to pilot called: Following the Money: Compendium of Resources and Step-by-step Guide to Financial Investigations Into Trafficking in Human Beings. Cyprus then established a framework of financial investigations based on public-private partnerships. Over two years, the office of the OSCE Special Representative and Co-ordinator has worked with financial institutions, including MOKAS, to support the analysis of suspicious financial transactions against trafficking indicators.

“As a result of the pilot, Cyprus issued its first strategic analysis report, which now serves as the country's operational alert to all financial institutions and other payment services,” says Andrea Salvoni, Deputy Coordinator, Office of the OSCE.

He adds: “The pilot also resulted in the identification of several cases related to trafficking of foreign women for sham marriages and several other cases that are pending investigations. This work has elevated Cyprus' profile in the anti-trafficking community, making it one of only a handful of OSCE-participating states that uses innovative ways to tackle the trafficking crime through partnering with the financial sector.”

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