Banks can help protect children: FinCEN advises on child sexual exploitation

New filing instructions for SAR involving online child sexual exploitation crimes.

In June 2021, FinCEN included Modern Slavery and Human Trafficking (MSHT) as one of its eight government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT). In their latest notice, all the recent financial trends related to online CSE offences were highlighted, including funding, production, and distribution of illicit materials. Such crimes are increasingly characterised by the use of virtual currency, peer-to-peer (P2P) mobile apps and the darknet networks where particularly on the dark web, third-party payment processors play a key role, as they help the criminals avoid detection.

The FinCEN notice provides banks with specific suspicious activity report (SAR) filing instructions for online CSE suspected crimes. It advises financial institutions to provide all significant information under a relevant SAR field and use specific keywords for indicating suspicious activity types. Even though these requests are addressed primarily to US-based financial institutions, they should not be limited to any geographies but rather represent a global call to action to stop human trafficking and protect the children.

Adding value to the FinCEN notice

In 2020, over 21.7 million suspected child sexual exploitation incidents were reported, 21.4 million of which came from online platform providers. A large amount of the proceeds generated by the production and distribution of illicit content is laundered daily through the traditional financial systems.

Such a rapid increase in cybercrimes throughout the pandemic necessitates increased awareness by compliance teams and regular updates of the typologies and data used in analytical tools. However, while FinCEN’s notice clearly contributes to a more efficient recognition of online CSE crimes, it has not yet provided any specific red flags which banks and other financial institutions need to be aware of while analysing and processing their data.

In addition, while FinCEN’s notice seems to indicate that monitoring services should focus heavily on cryptocurrency transactions, research from ATII suggests that CSE offenders are also using credit cards to trade illicit files.

How can banks get involved in the fight against online CSE?

Different bodies across the financial sector, together with the regulators and NGOs, have long been involved in producing and distributing resources that facilitate the detection and reporting process of activities spotting the signs of modern slavery and CSE. One of these tools is RedCompass Labs’ RedFlag Accelerator Typologies, an open source of modern slavery, human trafficking and child sexual exploitation indicators and scenarios. Based on the consolidation, enrichment, and de-codification of over 200 global red flag sources, they help financial institutions accelerate the search for and improve the accuracy of identifying MSHT and CSE traces in their data. The Typologies are available to financial institutions to help them understand how their data can help in the fight against these heinous crimes.

The RedCompass Labs team can also conduct a risk assessment of the gaps in your defence or investigation mechanisms and propose ways to address them with both quick wins and longer-term plans.

Today, we are joining FinCEN’s call to action to break the business model for online CSE. By collaborating together, training your staff and increasing awareness and sharing knowledge across different industries, we can disrupt the supply chain and demand for Child Sexual Exploitation and Abuse/ Exploitation Materials (CSAM/CSEM) to protect children.