Customers who avoid face-to-face contact, frequently change phone numbers, show signs of depression and who are often accompanied by third parties could be linked to human trafficking, according to the financial intelligence agency.

These patterns of behaviour were among the red flags highlighted by the Financial Intelligence Analysis Unit (FIAU) in a recent report issuing guidelines for the financial sector on how to detect money laundering linked to human trafficking and modern slavery.

The agency also highlighted red flags specifically linked to labour exploitation – which it said made up most of the human trafficking cases in Malta citing a European Council report on the topic – and sexual exploitation.

The FIAU also noted that construction companies and massage parlours were among the businesses commonly used to launder profits from human trafficking and modern slavery.

Stressing the “pivotal role” of the financial sector in detecting trafficking crimes, the FIAU said it was “very challenging” to identify money laundering from one sign alone and highlighted the importance of combining such signs with other “red flags”.

It said that while “soft indicators” recognised by financial workers were useful in identifying victims of exploitation or low-ranking members of criminal organisations, automated transaction monitoring could help identify higher-ranking members.

Citing a European Council report on human trafficking from 2021, which found that 77% of the 44 identified victims of human trafficking in Malta from 2017 to 2020 were trafficked for labour exploitation, the FIAU listed several indications of the practice.

These included soft indicators such as a high number of inhabitants living at one address and customers showing poor standards of hygiene or signs of bruising and other physical abuse.

Financial red flags, meanwhile, included specific ATMs being used at regular intervals, regular transfers to a third party – indicating possible debt bondage – and recurring payments lower than the minimum wage, among others.

Turning to sexual exploitation, the FIAU said financial institutions should be on the lookout for low-value transactions to jurisdictions linked to the practise and “suspicious transactions linked to known nightclub districts”.

Meanwhile, soft indicators included different writing styles when communicating with customers over email and an "unusual number” of joint account holders, it said.

The agency also warned against customers with contact information also found to be connected to advertising escort services, model and entertainment agencies or "sexual services".

The FIAU said the goal of the report was to raise awareness of “risks in the financial sector” of money laundering linked to human trafficking and modern slavery and to provide the “necessary tools” to prevent it.

“Better quality and quantity of... reports in Malta will help the FIAU and other government authorities, namely law enforcement authorities, to better understand and combat the problem.”

Money laundering methods

The agency said there were four main ways that human traffickers and modern slavers laundered money in a number of countries including Malta.

One such method was the use of “front companies” purporting to be legitimate businesses to mask financial illegalities. Such businesses commonly included massage parlours, nail salons, bars and restaurants and agriculture and construction companies.

The FIAU said that in one such example, a gaming company had been used as a front to move around €350,000 of funds linked to a criminal organisation that netted over €20 million by abusing approximately 500 women over five years.

Other money laundering routes included abusive employment practises such as visa fraud and keeping part of victims’ wages, “funnel accounts” – where funds are deposited into one account and quickly withdrawn by other people in several locations – and using anonymous online payment methods such as cryptocurrencies.

High-risk industries

The agency said that of the high-risk industries identified globally as being linked to human trafficking and modern slavery, several were “especially relevant” to Malta.

These included the construction sector, residential care work, taxis and food delivery, domestic work such as household cleaning and massage parlour activities, citing a “roundtable discussion” on the subject held in July last year.

Massage parlours and links to sex work

In a separate report on massage parlours in Malta and possible links to exploitation released around the same time, the FIAU spoke of the “alarming reality” of sexual exploitation in some parlours in the country.

The agency said its research showed that of the women identified as at risk within the sector, around half were European and half were Asian. Maltese women made up around a third of the total, while Chinese and Thai nationals made up significant numbers of the Asian population, it said.

Stressing that while a “very limited number” of reports of sexual exploitation were reaching the authority, in most of the reports it received the only grounds for suspicion was “an element of unexplained wealth” on the part of the owner or a close associate.

The FIAU said several reports also mentioned “Asian individuals who were depositing cash which was deemed to be excessive and not in line with their known profile”, with funds transferred to their country of origin in several cases.

However, the agency noted there could be reasonable explanations for such payments, such as sending money to family members.

It said its analysis of illicit Maltese massage parlours highlighted the need for “heightened awareness and concerted efforts to combat this pervasive issue.”