Human Trafficking and its Intersection
With the Financial System
September 3, 2019
David Murray
Vice President
Financial Integrity Network

Thank you, Chairman Sasse and Ranking Member Warner, for convening thishearing 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 thissubcommittee. 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 of2014, 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 toother types of criminal activity, whose touch points are usually more discrete. Drugtrafficking is principally a cash business, and the proceeds of the crime are held ascash well into the money laundering cycle.3 Fraud typically targets money that isalready 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 theirbusinesses 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 usedcash, 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 associatedwith 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 anonymouscompanies.9
I make three recommendations to disrupt human trafficking organizations byincreasing 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
WWW.FININTEGRITY.COM1▶▶ 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 thepayments 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 theillicit 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 businessmodel for human trafficking therefore requires human trafficking organizations tomanage three primary funds flows in the United States: money for logistics such astransportation 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 lowlevel operatives, according to the Financial Action Task Force (FATF).15 Victims
have been identified when they incurred unusually high lodging, sustenance, ortransportation 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 toremain anonymous, such as prepaid cards and cryptocurrencies, for purchases ofadvertisements 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 ofsex may also use cryptocurrencies to pay for premium memberships on websites thatthey use to review services.20 When human trafficking organizations use fronts suchas massage parlors, they may accept credit cards.21
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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 formoving funds are consistent with those employed by other dangerous transnational
criminal organizations. Human traffickers have used money transmitters, shellcompanies, and unregulated money services businesses to send money upstream.23
The large profits suggest that human trafficking organizations’ funds flows may havea 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 todetect human trafficking networks operating in the U.S. financial system.25 Visa
and Mastercard have banned customers whose businesses are at high risk for humantrafficking from their networks,26 as have leading fintech firms such as PayPal27
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 financerisks 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, inclose 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 humantrafficking 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
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detecting larger payments.37 At higher levels of human trafficking organizations,criminal organizations employ sophisticated money laundering techniques toevade detection, including by exploiting anonymous shell companies to conceal theiractivities.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, andimproving 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: anonymouscompanies. Such companies have been a persistent weak spot in our efforts to preventmoney laundering and disrupt criminal organizations. They were mentioned in thefirst-ever National Money Laundering Strategy in 199939 and highlighted as a major
vulnerability in the National Money Laundering Risk Assessment in 201540 and again
in the National Money Laundering Risk Assessment in 2018.41
Anonymous companies may present themselves in one of two forms: Anonymousshell 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 beformed cheaply and have little or no overhead.44 But those same characteristics makethem 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
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much more. Anonymous companies can conceal relationships among theparties to a transaction, as in the case of the Russian Laundromat scandal,47 todefeat financial institutions’ anti-money laundering detection systems. They also canconceal sanctions evasion, as in the case of ZTE48 or North Korea.49 And they canhide a politically exposed person’s interest in a transaction, as seen in the behavior of
corrupt officials in Venezuela50 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 UnitedStates, 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 isavailable 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 coverfirms involved in convertible virtual currency transactions: virtual asset service
providers (VASPs), which are firms involved in convertible virtual currencytransactions. VASPs should include cryptocurrency service providers that are
already covered by the BSA as well as virtual asset services that currently falloutside the scope of the BSA.

A convertible virtual currency is a “medium of exchange that can operate likecurrency but does not have all the attributes of ‘real’ currency.”56 Bitcoin is aconvertible 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 thisyear.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 irrevocablesettlement and the potential for anonymity. Importantly, some virtual assets aretraded through decentralized networks, with no central oversight body.59 In otherwords, 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 thatanyone 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
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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 playdifferent 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 system-wide 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 invirtual assets. Virtual asset exchangers are required to keep records, maintaineffective AML programs, and file SARs. They also should be required
to establish risk-based customer identification programs and to conductcustomer 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 initialoffering 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 thatare financial institutions, because virtual asset issuers are well positioned toplay 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 riskbased customer identification programs and to conduct CDD, because thetransaction-based customer identification requirements currently in place
under the existing MSB regime are insufficient to mitigate risk for accountWWW.FININTEGRITY.COM6

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
mining62 – 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, andcustodians that they serve.
▶▶ Non-Custodial Virtual Asset Wallets: Non-custodial virtual asset wallets allow
virtual asset users to store their assets on a personal device rather than in afinancial institution. Personal ownership and use of non-custodial wallets
are not currently regulated under the BSA.64 Strong consideration should begiven to prohibiting virtual asset transaction validators from allowing noncustodial wallets to transact through their systems. Non-custodial wallets also
should be subject to border declaration requirements, just as cash and otherbearer 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 blockchainbased 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 tofinancial transparency. Indeed, some financial products services have been deemed sorisky 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 correspondentbanking relationships with shell banks.68
WWW.FININTEGRITY.COM7▶▶ 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 coveredby 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 posechallenges 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 associatedhimself 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 moneytransmitters that maintain accounts for their customers implement risk-based
customer identification and CDD programs, and exclusions to the definition ofmoney 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 areencouraging 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 formoney transmitters are insufficient to address the risk resulting from the evolutionof 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 thatcover an increasing number of consumer payments are geared toward financial
institutions that serve occasional customers. This is most clear in the lack of customer
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identification and CDD rules governing account relationships with MSBs, eventhough 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 writtenagreement with the seller are excluded from the definition of money transmission andthus are not subject to the BSA.77 FinCEN refers to this as 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 withmore diverse and higher risk business models.82 Moreover, the types of payments
handled by payment processors have more explanatory power than was believed whenthe 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 intomerchant behavior and risk.84
In practice, this means that when a bank’s merchant customer receives money througha 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 largetransactions coming from the payment processor to the merchant’s account at thebank. 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
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the payment chain may not be able to determine the source of funds for sanctions
screening purposes.
How Payment Processors Can be Exploited to Conceal Information

Originator

Originator

Originator

Institutions to the left of the dotted line
only see the first half of the transaction.
Information about the ultimate
beneficiary is shielded.

Originators’
BanksInstitutions to the right of the dottedline only see the second half of thetransaction. Information about the true
originator is shielded.

Payment
Processor

Payment processor
appears to be ultimate
beneficiary of payment

Merchant’sBank

Merchant

Payment processor
appears to be true
originator of payment

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 theparty 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 havethe 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 processorof 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
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online payment systems.88 It courted customers engaged in high-risk businesses
such as adult content, online gaming, health and wellness products, dating, andcall centers.89
Many of the human trafficking red flags identified by FinCEN90 and the FATF91 rely on
visibility into consumer payments. Therefore, maintaining and improving visibility
into these payments is critical to detecting human trafficking activity. The gaps in theregulatory regime governing consumer payments should be closed, particularly thegaps in customer identification and the gaps in the definition of money transmissionthat allow some higher risk businesses to operate outside the BSA framework.

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Endnotes
1

2

3

4

International Labour Office, “PROFITS AND
POVERTY: The economics of forced labour,”May 20, 2014, Page 13, https://www.ilo.
org/wcmsp5/groups/public/---ed_norm/--declaration/documents/publication/
wcms_243391.pdf.
International Labour Office, “PROFITS AND
POVERTY: The economics of forced labour,”May 20, 2014, Page 14, https://www.ilo.
org/wcmsp5/groups/public/---ed_norm/--declaration/documents/publication/
wcms_243391.pdf.
Treasury Department, “National Money
Laundering Risk Assessment,” June 12, 2015,
Page 23, https://www.treasury.gov/resourcecenter/terrorist-illicit-finance/Documents/
National%20Money%20Laundering%20Risk%20
Assessment%20–%2006-12-2015.pdf.
Treasury Department, Treasury Department,“National Money Laundering Risk Assessment,”
June 12, 2015, Page 11, https://www.
treasury.gov/resource-center/terrorist-illicitfinance/Documents/National%20Money%20
Laundering%20Risk%20Assessment%20–%20
06-12-2015.pdf.

reports/Virtual-currency-key-definitions-andpotential-aml-cft-risks.pdf.
12Bloomberg, “After Danske, New Dirty Money
Risk Seen in Payment Services,” March 17,
2019, https://www.bloomberg.com/news/
articles/2019-03-17/after-danske-next-dirtymoney-route-gets-scrutinized-in-denmark.

13

United Nations Office on Drugs and Crime,“Global Report on Trafficking in Persons 2018,”
December 2018, Page 71, https://www.unodc.
org/documents/data-and-analysis/glotip/2018/
GLOTiP_2018_BOOK_web_small.pdf.

14

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

15

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

16

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

17

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

18

Cyrus Vance, House Financial Services
Committee, January 30, 2018.

5

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

6

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

19

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

7

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

20

Cyrus Vance, House Financial Services
Committee, January 30, 2018.

21

8

FinCEN, “FinCEN Launches “FinCEN Exchange”
to Enhance Public-Private Information Sharing,”
Dec. 4, 2017, https://www.fincen.gov/news/
news-releases/fincen-launches-fincenexchange-enhance-public-private-informationsharing.

Yelp review of massage parlor whose owner
was indicted on human trafficking charges.

22International Labour Office, “PROFITS AND
POVERTY: The economics of forced labour,”May 20, 2014, Page 13, https://www.ilo.
org/wcmsp5/groups/public/---ed_norm/--declaration/documents/publication/
wcms_243391.pdf.

23

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

24

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

25

Cyrus Vance, House Financial Services
Committee, January 30, 2018.

26

Cyrus Vance, House Financial Services

9

10

11

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.
Office of Tom Cotton, “Cotton, Colleagues
Unveil Legislation to Combat Terror
Finance, Money Laundering,” June 10, 2019,https://www.cotton.senate.gov/?p=press_
release&id=1151.
FATF, “Virtual Currencies Key Definitions andPotential AML/CFT Risks,” June 2014, https://www.fatf-gafi.org/media/fatf/documents/

WWW.FININTEGRITY.COM12

Committee, January 30, 2018.
27

PayPal, “Acceptable Use Policy,” June 15, 2018,https://www.paypal.com/us/webapps/mpp/
ua/acceptableuse-full.

28

Stripe, “Restricted Businesses,” March 15, 2019,https://stripe.com/restricted-businesses.

29

Rick McDonnell, “Banks-The Unexpected
Heroes In The War Against Human Trafficking,”
Fortune.com, July 17, 2018.

30

31

FinCEN, “Guidance on Recognizing Activity that
May be Associated with Human Smuggling andHuman Trafficking – Financial Red Flags,” Sept.
11, 2014, https://www.fincen.gov/sites/default/
files/advisory/FIN-2014-A008.pdf
FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

32

FinCEN, “FinCEN Seeks to Strengthen PublicPrivate Partnership to Combat Financial
Crime,” Dec. 4, 2017, https://www.fincen.gov/
news/news-releases/fincen-launches-fincenexchange-enhance-public-private-informationsharing.

33

FinCEN, “FinCEN Seeks to Strengthen PublicPrivate Partnership to Combat Financial
Crime,” Dec. 4, 2017, https://www.fincen.gov/
news/news-releases/fincen-launches-fincenexchange-enhance-public-private-informationsharing.

34

FinCEN, “New FinCEN Division Focuses on
Identifying Primary Foreign Money Laundering
Threats,” August 28, 2019, https://www.fincen.
gov/news/news-releases/new-fincen-divisionfocuses-identifying-primary-foreign-moneylaundering-threats.

35

FinCEN, “New FinCEN Division Focuses on
Identifying Primary Foreign Money Laundering
Threats,” August 28, 2019, https://www.fincen.
gov/news/news-releases/new-fincen-divisionfocuses-identifying-primary-foreign-moneylaundering-threats.

36

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

37

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/fatf/
content/images/Human-Trafficking-2018.pdf.

38

Cyrus Vance, House Financial Services
Committee, January 30, 2018.

39

Treasury Department and the JusticeDepartment, “The National Money Laundering
Strategy for 1999,” September 1999, https://www.treasury.gov/press-center/pressreleases/Documents/money.pdf.
40Treasury Department, “National Money
Laundering Risk Assessment,” 2015, https://www.treasury.gov/resource-center/terroristillicit-finance/Documents/National%20
Money%20Laundering%20Risk%20
Assessment%20–%2006-12-2015.pdf.

41

Treasury Department, “National Money
Laundering Risk Assessment 2018,” Dec. 20,
2018, Page 28, https://home.treasury.gov/
system/files/136/2018NMLRA_12-18.pdf.

42

FATF, “Transparency And Beneficial Ownership,”
October 2014, available at http://www.fatf-gafi.
org/media/fatf/documents/reports/Guidancetransparency-beneficial-ownership.pdf.

43

Chip Poncy, “Beneficial Ownership: Fighting
Illicit International Financial Networks ThroughTransparency,” Feb. 6, 2018, available at
http://www.financialintegritynetwork.net/
uploads/8/7/8/0/87802750/2018.02.05_c.
poncy_testimony_for_senate_judiciary_committee.pdf.

44

Jim Zarroli, “Want to Set Up a Shell
Corporation to Hide Your Millions? No
Problem,” NPR, available at https://www.npr.
org/2016/04/13/474101127/want-to-set-upa-shell-corporation-to-hide-your-millions-noproblem.

45

Chip Poncy, “Beneficial Ownership: Fighting
Illicit International Financial Networks ThroughTransparency,” Feb. 6, 2018, available at
http://www.financialintegritynetwork.net/
uploads/8/7/8/0/87802750/2018.02.05_c.
poncy_testimony_for_senate_judiciary_committee.pdf.

46

Chip Poncy, “Beneficial Ownership: Fighting
Illicit International Financial Networks ThroughTransparency,” Feb. 6, 2018, available at
http://www.financialintegritynetwork.net/
uploads/8/7/8/0/87802750/2018.02.05_c.
poncy_testimony_for_senate_judiciary_committee.pdf.

47

OCCRP, “The Russian Laundromat Exposed,”
March 20, 2017, available at https://www.occrp.
org/en/laundromat/the-russian-laundromatexposed/.

48

Treasury Department, “Settlement Agreement
between the U.S. Department of the Treasury’s
Office of Foreign Assets Control and Zhongxing
Telecommunications Equipment Corporation,”
March 7, 2017, https://www.treasury.
gov/resource-center/sanctions/CivPen/
Documents/20170307_zte_settlement.pdf.

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49

50

51

52

53

Potential AML/CFT Risks,” June 2014,
https://www.fatf-gafi.org/media/fatf/
documents/reports/Virtual-currency-keydefinitions-and-potential-aml-cft-risks.pdf.

Financial Crimes Enforcement Network,“Advisory on North Korea’s Use of theInternational Financial System,” Nov. 2, 2017,
available at https://www.fincen.gov/sites/
default/files/advisory/2017-11-02/DPRK%20
Advisory%20FINAL%20508%20C.pdf.

60

Financial Crimes Enforcement Network,“Advisory on Widespread Public Corruption
in Venezuela,” Sept. 20, 2017, available athttps://www.fincen.gov/sites/default/files/
advisory/2017-09-20/FinCEN%20Advisory%20
FIN-2017-A006-508%20Compliant.pdf.

FinCEN, “Application of FinCEN’s Regulations to
Certain Business Models Involving Convertible
Virtual Currencies,” May 9, 2019, https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.
pdf.

61

FinCEN, “Application of FinCEN’s Regulations to
Certain Business Models Involving Convertible
Virtual Currencies,” May 9, 2019, https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.
pdf.

62

FATF, “Virtual Currencies: Key Definitions andPotential AML/CFT Risks,” June 2014, https://www.fatf-gafi.org/media/fatf/documents/
reports/Virtual-currency-key-definitions-andpotential-aml-cft-risks.pdf.

63

FinCEN, “Application of FinCEN’s Regulations to
Virtual Currency Mining Operations,” Jan. 30,
2014, https://www.fincen.gov/sites/default/
files/administrative_ruling/FIN-2014-R001.pdf.

64

FinCEN, “Application of FinCEN’s Regulations to
Certain Business Models Involving Convertible
Virtual Currencies,” May 9, 2019, https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.
pdf.

65

FATF, “United States of America Mutual
Evaluation Report 2006,” June 23, 2006,
http://www.apgml.org/includes/handlers/
get-document.ashx?d=f747d950-9e02-4cd8a933-6916782a3aee. Nevada and Wyoming
subsequently prohibited bearer shares.

66

Office of Tom Cotton, “Cotton, Colleagues
Unveil Legislation to Combat Terror
Finance, Money Laundering,” June 10, 2019,https://www.cotton.senate.gov/?p=press_
release&id=1151.

67

FATF, “Transparency and Beneficial Ownership,”
October 2014, http://www.fatf-gafi.org/
media/fatf/documents/reports/Guidancetransparency-beneficial-ownership.pdf.

68

FATF, “Methodology for Assessing TechnicalCompliance with the FATF Recommendations
and the Effectiveness of AML/CFT Systems,”
February 2019, http://www.fatf-gafi.org/
media/fatf/documents/methodology/FATF%20
Methodology%2022%20Feb%202013.pdf.

69

FATF, “Methodology for Assessing TechnicalCompliance with the FATF Recommendations

Financial Crimes Enforcement Network,“Advisory on Human Rights Abuses Enabled
by Corrupt Senior Foreign Political Figures
and their Financial Facilitators,” available athttps://www.fincen.gov/sites/default/files/
advisory/2018-06-12/PEP%20Facilitator%20
Advisory_FINAL%20508.pdf.
Treasury Department and the JusticeDepartment, “The National Money Laundering
Strategy for 1999,” September 1999, available
at https://www.treasury.gov/press-center/press-releases/Documents/money.pdf.
Joshua Kirschenbaum and David Murray,
Bloomberg Opinion, “Do You Know Which
Nations Own Your Data? The U.S. Government
Doesn’t,” May 23, 2019, https://www.
bloomberg.com/opinion/articles/2019-05-23/
private-equity-hides-foreign-capital-from-u-sscrutiny.

54

Cyrus Vance, House Financial Services
Committee, January 30, 2018.

55

FATF, “United States Mutual Evaluation Report,”
December 2016, available at http://www.fatfgafi.org/media/fatf/documents/reports/mer4/
MER-United-States-2016.pdf.

56

FinCEN, “Application of FinCEN’s Regulations to
Certain Business Models Involving Convertible
Virtual Currencies,” May 9, 2019, https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.
pdf.

57

Financial Actions Task Force, “The FATF
Recommendations,” June 2019, http://
www.fatf-gafi.org/media/fatf/documents/
recommendations/pdfs/FATF%20
Recommendations%202012.pdf.

58

Bloomberg, “Bitcoin Criminals Set to Spend$1 billion on Dark Web This year,” July 1,
2019, https://www.bloomberg.com/news/
articles/2019-07-01/bitcoin-criminals-set-tospend-1-billion-on-dark-web-this-year.

59

FATF, “Virtual Currencies Key Definitions and

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and the Effectiveness of AML/CFT Systems,”
February 2019, http://www.fatf-gafi.org/
media/fatf/documents/methodology/FATF%20
Methodology%2022%20Feb%202013.pdf.
70

31 USC 5318(l).

71Cyrus Vance, House Financial Services
Committee, January 30, 2018.

72

PayPal, “Who We Are,” undated, https://www.
paypal.com/us/webapps/mpp/about.

73

Bank of England, “The Growing Challenges for
Monetary Policy in the current International
Monetary and Financial System,” Aug. 23, 2019,https://www.bankofengland.co.uk/-/media/
boe/files/speech/2019/the-growing-challengesfor-monetary-policy-speech-by-mark-carney.pdf.

74

31 CFR 1010.415.

75

31 CFR Part 1020.

76

76 FR 43596, July 21, 2011.

77

31 CFR 1010.100(ff )(5)(ii)(B).

78

FinCEN, “Application of Money Services
Business Regulations to a Company Acting as an
Independent Sales Organization and Payment
Processor,” Aug. 27, 2014, https://www.fincen.
gov/sites/default/files/administrative_ruling/
FIN-2014-R009.pdf.

79

74 FR 22129, May 12, 2009.

80

74 FR 22129, May 12, 2009.

81

FinCEN, “Whether an Authorized Agent for
the Receipt of Utility Payments is a Money
Transmitter,” May 21, 2008, https://www.fincen.
gov/sites/default/files/administrative_ruling/fin-2008-r006.pdf.

82

Mayer Brown, “California to Clarify Money
Transmission Act Exemption ThroughRulemaking,” March 8, 2019, https://www.mayerbrown.com/-/media/files/
perspectives-events/publications/2019/03/

californiaclarifymoneytransmissionact
exemptionthroughrulemaking.pdf.
83

FinCEN, “Application of Money Services
Business Regulations to a Company Acting
as an Independent Sales Organization
and Payment Processor,” August 27, 2014,
https://www.fincen.gov/sites/default/files/
administrative_ruling/FIN-2014-R009.pdf.

84

Bloomberg, “After Danske, New Dirty Money
Risk Seen in Payment Services,” March 17,
2019, https://www.bloomberg.com/news/
articles/2019-03-17/after-danske-next-dirtymoney-route-gets-scrutinized-in-denmark.

85

Treasury Department, “Treasury Sanctions
Individuals and Entities as Members of the
Pacnet Group,” Sept. 22, 2016, https://www.
treasury.gov/press-center/press-releases/
Pages/jl5055.aspx.

86

Treasury Department, “Treasury Sanctions
Argentina-based Goldpharma,” May 23, 2019,https://home.treasury.gov/news/pressreleases/sm694.

87

Smile Payments, “Partner Program,” undated,
http://smilepayments.com/en/partnerproram/.

88

Smile Payments, “Partner Program,” undated,
http://smilepayments.com/en/partnerproram/.

89

Smile Payments, “Rates,” undated, http://
smilepayments.com/en/rates/.

90

FinCEN, “Guidance on Recognizing Activity that
May be Associated with Human Smugglingand Human Trafficking – Financial Red Flags,”
Sept. 11, 2014, https://www.fincen.gov/sites/
default/files/advisory/FIN-2014-A008.pdf.

91

FATF, “Financial Flows from Human Trafficking,”
July 2018, https://www.fatf-gafi.org/media/
fatf/content/images/Human-Trafficking-2018.
pdf.

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