Human Trafficking & The Financial System

• Jan 31, 2023

January is National Human Trafficking Prevention Month. Every year, this time is dedicated to raise awareness about human trafficking and to educate the public about how to identify and prevent it. Trafficking is defined as using fraud and coercion to exploit victims for labor, services, or commercial sex. Trafficking continues to be a major issue. In 2021, the U.S. Department of Homeland Security opened 1,111 investigations related to human trafficking, an increase from 947 in 2020. Globally, it is estimated that over 27 million people were forced into labor during that time frame, making it one of the most lucrative crimes and second only to drug trafficking. Here?s a closer look at how traffickers use the financial system, and what banking leaders can do to prevent these crimes. Transaction laundering is rampant in ecommerce One of the most common types of fraud traffickers perpetrate is transaction laundering, in which transactions are processed through an online merchant that falsely represents itself as a legitimate business. Fraudsters use a variety of methods to launder funds, including the use of fake webpages and URLs, false product listings, and funnel accounts that hide the source of transactions. Transaction laundering is a particular issue in the ecommerce space, where the threat of illegal activity is higher than you may suspect. In fact, EverC?s artificial intelligence solutions, which continuously monitor ecommerce platforms, have detected more than four million merchant violations and more than two million product violations that indicate fraud. This trend is getting worse year over year. Malicious ecommerce sites increased by 178% in 2021 from October to December. And the increase in ecommerce fraud is not lost on consumers, 59% of which are more concerned about becoming a victim of fraud now than they were in 2021. A major contributor to ecommerce fraud is the fact that acquirers, payment processors, and marketplaces find it challenging to manually vet every new merchant that joins their platform. In many cases, this means evaluating thousands of new merchants, URLs, and product listings every day. When financial institutions don?t have a thorough merchant onboarding and vetting process in place, fraudulent or criminal merchants can easily slip through the cracks and conduct criminal activity unnoticed. New payment options mean new ways to conduct fraud The proliferation of new financial services has brought about new opportunities for traffickers. A growing trend is the use of merchant-based carding schemes, which has seen a spike due to ease of access to payment infrastructure. Hundreds of payment facilitators now offer direct services to merchants, allowing them to bypass the process of obtaining a merchant account directly through the bank. Criminal carders set up fake, online stores, then open merchant accounts with payment facilitators. They use these accounts to cash out stolen credit card funds, at the expense of the legitimate card owner. Unfortunately, fraudsters can access thorough guides on the internet that explain how to go about a merchant-based carding scheme. In many cases, instructions include ways to bypass traditional anti-fraud methods from financial firms such as KYC protocols ? making this an even bigger concern. Firms that want to ensure their platforms aren?t being used for illegal activity like trafficking need to adapt and find new ways to identify merchant-based card schemes. This can include reviewing websites for fraud (ex. A lack of check-out feature may indicate the website doesn?t service an outward audience) or reviewing a merchant?s transaction history for suspicious patterns (ex. Unusual purchasing hours). Automation detects fraud faster than ever Traffickers will always try to adapt to new ways of conducting illegal activity. But the good news is that modern automation solutions provide a concrete way for banks, acquirers, and marketplace to combat trafficking through fraud prevention and detection. New risk management technologies provide immediate and ongoing merchant risk intelligence for financial and ecommerce products. They use artificial intelligence to uncover high-risk merchants, detect online money laundering and illegal services, and immediately remove them from platforms. Automation can help providers safely and efficiently onboard and host merchants, while safely growing at scale. Critically, these tools provide a faster level of assessment than could ever be achieved through a manual review process. For example, EverC?s MerchantView solution automatically analyzes merchants' URLs and related websites to uncover money laundering and additional risk factors. It takes less than one hour to determine the risk of new merchants and has scanned more than 630 million websites. Fight human trafficking Financial leaders should remember that their platforms may be hosts to human trafficking activity through transaction laundering, merchant-based carding, and other evolving schemes. But the use of automated tools can prevent traffickers from using their services and promote merchant transparency throughout the payment system. As human trafficking continues to be a problem worldwide, financial leaders need to step up and take action to fight this persistent problem. Author Bio: Maya Shabi is a Payments and Risk Specialist with EverC, the world?s first fully automated, AI-driven cross-channel risk management platform. EverC is transforming the internet into a safe and trusted place for ecommerce.

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