FinCEN Alert Helps Financial Institutions Better Identify Potential Human Smuggling Transactions

In January 2023, the Financial Crimes Enforcement Network (FinCEN) issued an alert to aid financial institutions detect financial activity related to human smuggling along the U.S. southwest border.

Here are their recommendations.

Human Smuggling is An Escalating Problem

In the fiscal year 2022, over 2.3 million encounters of smuggling activity occurred at the U.S. southwest border — a sizable increase over the 500,000 incidents in 2020.

Oppressive and corrupt regimes in countries such as Venezuela, Cuba and Nicaragua have contributed to this uptick in smuggling activity which generates an estimated $2 – $6 billion in yearly revenue for illicit human smuggling operators.

Although most migrants encountered at the border originate from Mexico and other parts of Latin America, a growing number of encounters are with migrants from the Caribbean, Europe and Asia.

Seeking greater economic opportunity, family reunification, or fleeing from violence and conflict, too many of these exiles face exploitation or mistreatment by human smuggling organizations intent only on financial gain.

Upon arrival in the United States, some migrants’ status and circumstances make them vulnerable to human trafficking or other forms of exploitation. 

Money Laundering Methodologies

Human smuggling is a criminal activity perpetrated against individuals, and a financial crime affecting banks and other financial institutions.

Smuggling operations are often associated in some way with transnational criminal organizations (TCO), such as drug cartels, which either receive “protection tax” for safe passage through territory they “control” or are more involved in the day-to-day operations.

Human smuggling networks use various methodologies to launder their illicit payments, usually in the form of cash and wire transfers. These often overlap with money laundering methods used by TCOs:

Cash placement and layering into the formal financial system: These methods include cash purchases of high-value assets, including real estate and business, or to finance living expenses, purchase luxury items or to support the smuggler’s drug or gambling habits.

Funnel accounts: Smuggling networks may seek to establish accounts with financial institutions with a large U.S. presence to allow for easy collection of payments from the families of those being smuggled and who may be in the United States.

Alternative payment methods: In addition to cash, human traffickers now accept payment via mobile or peer-to-peer payment apps.

Financial Red Flag Indicators of Human Smuggling

FinCEN has identified the following financial red flag indicators to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with human smuggling. 

Because no single financial red flag indicator can conclusively determine illicit or suspicious activity, financial institutions should consider the relevant facts and circumstances of each transaction, in keeping with their risk-based approach to compliance.

  1. Transactions involving multiple wire transfers, cash deposits, or P2P payments from multiple originators from different geographic locations, either across (1) the United States or (2) Mexico and Central America, to one beneficiary located on or around the SW border, with no apparent business purpose.
  2. Deposits made by multiple individuals in multiple locations into a single account, not affiliated with the account holder’s area of residence or work, with no apparent business purpose.
  3. Currency deposits into U.S. accounts without explanation, followed by rapid wire transfers to countries with high migrant flows (e.g., Mexico, Central America) in a manner that is inconsistent with expected customer activity.
  4. Frequent exchange of small-denomination for larger-denomination bills by a customer who is not in a cash-intensive industry.
  5. Multiple customers sending wire transfers to the same beneficiary (who is not a relative and may be located in the sender’s home country), inconsistent with the customer’s usual business activity and reported occupation.
  6. A customer making significantly greater deposits—including cash deposits—than those of peers in similar professions or lines of business.
  7. A customer making cash deposits inconsistent with the customer’s line of business. 
  8. Extensive use of cash to purchase assets, such as real estate, and to conduct transactions.

Suspicious Activity Reporting

A financial institution must file a Suspicious Activity Report (SAR) with the FinCEN whenever there’s a suspected case of money laundering or fraud. 

SARs allow governments to spot and analyze emerging trends and patterns across a broad spectrum of personal and organized crime. 

Financial institutions must monitor customer transactions for potential money laundering or violations of the Bank Secrecy Act (BSA). If criminal activity is detected, the SAR must be filed within 30 days and kept for five years from the filing date.

Failure to comply with these regulations can result in civil and criminal penalties, including substantial fines, regulatory res