Trail of tears: How AML disrupts the financial fuel of human trafficking

We recently had the honour of speaking with Matthew Friedman, CEO of The Mekong Club. The Mekong Club is an organisation that works with the private sector to bring about sustainable practices towards the fight against modern slavery.

Matthew is a global expert on modern slavery and human trafficking. An award-winning filmmaker, author and philanthropist, Matthew regularly advises heads of governments and intelligence agencies. Matthew is considered the leading catalyst of the anti-slavery movement in Asia’s business sector by captains of industry.

He has managed and directed tens of millions of dollars to major humanitarian portfolios impacting millions of people for the World Bank, the U.S. State Department and the United Nations.

First AML: Matt, you’ve spent more than 30 years working in places that have brought you face to face with the impact of human trafficking. Your role as a senior USAID public health official focused on education and prevention of HIV/AIDS in small rural communities. You’re obviously a very compassionate person. So how did it all begin? How were you drawn to this line of work?

Matt Friedman: Well I was living and working in Nepal. I was a public health officer as you indicated. And my job was basically to translate resources into healthier people. At that time we were finding girls, twelve, 13 years old, who were HIV positive and I couldn't understand what was going on. This is a very conservative culture.

So we went to go and interview the women and the girls that were in the shelters. And we heard pretty much the same story over and over again. It went something like this.

A human trafficker, guy around 20 years old, would go to a remote village and flash a bunch of money around. He wanted everyone to think he was rich. He'd then say "I'm looking for a wife. I don't want an urban wife, I want a rural wife." He'd go around find somebody who he thought was attractive, a twelve or 13 year, old girl, be-friend her, and then go to the family and say "I'd like to marry your daughter." They're thinking, "wow, he's rich, he's handsome, he's gonna take care of our daughter and he's gonna take care of us."

In that part of the world getting married at that age is very common. After that they actually have a wedding ceremony. The entire community is there. He then goes to the family and says, "I'm gonna take your daughter to the capital of Nepal, Kathmandu, but don't worry I'll be back in 3 months."

But that isn't what's going to happen. Instead, he takes her to India to the red light district where there are brothels. Now this girl's never been more than 20km away from her village. When she's in India, she thinks she's still in the Nepal.

He puts her in a room and he says "Honey stay here, I'll be back in a few minutes." As she was coming in she saw these women and men milling around. Women wearing funny clothes. She says "No, no, no, no. Don't leave me here."  He says "It's okay. I'll be right back." He then goes to the madam to get the $US 500  for having sold her to the brothel and hands the wedding pictures over to her.

He then leaves to go back to Nepal to do this again and again and again. Maybe 40 or 50 times in the year. The madam then goes into the room where the girl is and says, "Guess what. Your husband just sold you to me and you're gonna be with 20 guys a day every day. Because I say so." You can imagine [the girl's] shock. "No, no, no, no, no, my husband loves me." "No, that's what happened."

"Guess what. Your husband just sold you to me and you're gonna be with 20 guys a day every day. Because I say so."

When many of these girls internalise, what is about to happen to them they say "I will kill myself before I do any other those shameful things. I'm a good Hindu girl." The madam then brings out the photograph of the wedding and says, "See your mom, your dad, your brother, you hurt yourself we will hurt them." So she's trapped in this situation.

In order to make her into a prostitute it's quite simple. You simply shame her. So they bring in a number of professional rapists and over a 2 day period of time, they use this girl over and over again until eventually she just lays back and accepts whatever happens to her.

After that she's put on the line. She will be with 20 guys a day every day until after a couple of years she gets what's called black eye where she's so depleted physically, emotionally and spiritually that nobody wants her. So they throw her out onto the street, many of them languish in India and die there of AIDS. Some of them get back. And those were the girls that I was talking to.

So I was hearing this story over and over again, but I didn't understand the evil of it until I actually went to those brothels. I was invited by the Indian government to do public health checks. I had a police officer with me. We were going from brothel to brothel. I went into one of the brothels and there was an 11 year old trafficking victim. This girl saw this Caucasian guy and saw an opportunity. She  literally ran up and wrapped herself around me and said "Save me! They're doing terrible things to me."

I went into one of the brothels and there was an 11 year old trafficking victim. She ran up and wrapped herself around me and said "Save me! They're doing terrible things to me."

I looked down at this child who is hysterically crying, wearing a dress 20 sizes too big because she was a child in an adult's world. I turned to the police officer and said "We need to get this girl out of here." He said, "We can't do that." "What are you talking about? You're a police officer!." He says, "If we try to leave, we'll both be killed."

To make a long story short, we left and came back, but of course that girl was gone. Now. I tell this story because I wasn't one of those 15 year olds that said "When I grew up, I want to be an activist." I did everything in my life not to be one, but every once in a while in life we are tested. That was my big test. I should have found a way of getting that girl out.

When I look back, I can think of 100 things I could have done. I could have just grabbed her and run out. I could have kind of stayed there and had the police come for the other police officer etc. But I didn't.

After that I was feeling so guilty and so ashamed of myself that I couldn't eat, I couldn't sleep and did what a lot of activist eventually do. I surrendered to the fact that now that I've been exposed to this, this is what I'm gonna do with my life and 30 years later here I am talking to you.

First AML: If we fast forward a little bit from there, when you got to the United Nations you were in the anti-trafficking world, and noticed a gap in engagement with the private sector in their anti-trafficking efforts. Not because they didn’t want to, but because they feared being named or shamed for approaching a UN official to ask for help. Tell us how that looked. What was causing that sense of shame? And how did it manifest in these businesses?

Matt Friedman: I'll go back a little bit more and provide a little bit more context to make it more clear. So back around 15 years ago, the statistics related to human trafficking, were getting better. The number of people estimated to be in modern slavery was about 21 million.

And at the same time, we were getting better statistics that looked at what the counter trafficking world was doing to address this and that number included all of the NGOs and the government and United Nations combined.

In terms of the number of people we were rescuing each year was about 34,000. When you put those two numbers together, it means that the world was only helping 0.2% of the victims.

When we at the United Nations came to that conclusion, we were actually quite upset and concerned. We're not having any impact at all. So we went back to the statistics and out of the 21 million people in modern slavery, 75% were associated with forced labor. But the other statistic was that 60% of that was associated with supply chains within the private sector.

So we said to ourselves well, we have to talk to the private sector. So as a UK official I decided that I was gonna start going to Hong Kong, that's where a lot of the regional offices are and captains of industry and so forth. And I would fly up and because I'm a UN official, they would agree to a meeting and you know, I would often kind of sit down with them and have a conversation.

"Your role as an [MLRO / AMLCO] is an important part of ensuring that people don't get victimised and you may not think it's relevant and important, but it certainly is."

And what I found over time was a particular pattern that they would listen to what I had to say, then they would say, "okay, well, we understand the business risk, but we're not gonna have a conversation with you because you're coming from that naming and shaming world. You can embarrass us. You can create a situation where our reputation can be tainted by this."

And as a result of multiple visits there, and because of the fact that at that time many of these organisations didn't understand what modern slavery was, it was recommended that perhaps what they need is an organisation to help them to raise awareness.  And a number of banks and manufacturing companies and so forth urged us to set something up. So I left the United Nations and I set up the Mekong Club in Hong Kong.

So The Mekong Club works with the private sector in a positive, supportive, non naming and shaming way in order to help businesses banks, like manufacturers, like the hospitality sector, to understand the issue and then to determine the risk factor in the vulnerability that they have.

And we do this in a very private confidential way to allow for banks to be able to address things. So that was one aspect of this.

One other thing that I want to mention about this is another thing that often happens. So because I'm a UN official and you know, you prepare for this months in advance and you contact the people and they agree to a meeting. And then when I get there they're like "Oh my gosh, I forgot about this meeting with that UN guy. Oh, I'm really busy today. I don't know why I agreed to this. But okay have them come in."

So I'd come in and I'd sit down, and this was back when Blackberries were in place and the guy would say, "Well I'm really busy today" and he's busy on his Blackberry saying "I only have 15 minutes of time, I'm sorry, it's just the way it is this week."

So I'd start talking about cases. I talk about forced labor cases, fishing cases, sex trafficking and so forth. And interestingly, after about 15 minutes, the Blackberry is on the table. 15 minutes after that he's leaning forward listening to what I had to say and 90 minutes later we're still talking.  At this point they're saying, "Oh, my gosh, I had no idea this was happening. This is terrible. What are we gonna do? How do we get involved in this? How do we address this?"

Because for whatever reason they hadn't been exposed to it from the human standpoint and as a result of listening to the cases and recognising that addressing anti money laundering or corruption or anything related to human traffic, that there was a real impact, an impact related to people being hurt as a result of this.

And as a result of that kind of reaction, some of the people from these banks in fact were the ones that helped us to set up The Mekong Club.

I'll just tell a story because I think it'll reflect this. A couple of years ago I was in the United States and I was attending a conference, the American banking association conference. I did a big presentation and afterwards, this guy comes up to me and it says "I want to tell you a story."  He said,

"I was taking my wife and daughter from one part of the United States to another and we were driving and we got to the halfway point and we pulled into a motel and I got my wife and daughter settled and I was going out for food and I saw this 14 year old girl being dragged into a room and you know, it looked like prostitution. I have a teenage daughter and I was a little bit concerned about that and I went to the manager and I said I think there's a problem here."

He then went back to his room and he's peeking out of the window to see if anything would happen. Sure enough 15 minutes later, police arrive and 15 minutes after that a person is being taken out in handcuffs. The girl's being taken to an unmarked car, presumably to a shelter.

And he said "I wanted to tell you that because I sell felt so proud of myself, this is a milestone in my life."

So I looked at this guy and I said to him, "What do you do? He says I'm in anti money laundering and we look at the client base and we try to identify where there's a risk and so forth. We do suspicious transaction reports, etc."

I ask him, "Well do you ever run human traffic in cases?" And he says "Oh, yeah, we do that." And I said, "Don't you realise that you've been doing this work all along? You may not see the outcome of what happens when you get that suspicious transaction, but maybe it's exactly what you saw that day, you know? Doors being kicked down, people being helped and so forth. You are a hero. Did you not realise that?"

So I looked at this guy and I said to him, "What do you do?" He says, "I'm in anti money laundering." I said, "You are a hero. Did you not realise that?"

And it took him a couple of minutes and then he had that aha moment.

"Oh yeah. What we do means something! It makes sense. It adds value to what it is. We're not only protecting the company, but we're also helping people!"

So a couple of months later, I'm in Singapore and I'm on stage and I do a big presentation and I tell the audience of 650 compliance people this story and I said "You guys are all heroes. Do you realise that by helping your company, you're helping the world to be a better place?"

I must have had about 12 or 15 people come up afterwards and say, "Nobody says that to us, but you're right. What we do is heroic, what we do helps people."

And I often say that the NGOs work on this issue, but the [MLROs / AMLCOs] have been doing this for a long time. You have to protect your business and by doing that you find bad things and you report it and you address those things and the world's a better place as a result of it.

So when I was going to Hong Kong, I was often using that message to say to the private sector, feel good about what you're doing. Your role has an important part of ensuring that people don't get victimised and you may not think it's relevant and important, but it certainly is.

First AML: Between 2006 and 2012 you were the Regional Project Manager at the United Nations International Project on Human Trafficking (UNIAP/UNDP). Yet varying levels of AML laws were enacted before and during that time; they’ve been in the UK since 1993, Thailand since 1999, Bangladesh since 2002, Australia since 2006 and Hong Kong since 2012. How did you reconcile the fact that governments were seemingly trying to minimise the ability of criminals to use their ill gotten gains from the likes of human trafficking with what you were seeing on the daily?

Matt Friedman: The interesting thing about the issue of human trafficking, modern slavery, forced labor, child labor etc is that when it comes to the government's response to this it's that they often feel like the only organisations that are capable of addressing this would be the United Nations or the NGOs. And so much of what you see is the governments moving in the direction of operationalising these particular groups. But in reality these organisations are never close enough to the action to make any kind of a difference.

The United Nations, for example. And I say this with all due respect to the United Nations I'll put my hand on my heart when I say this, I believe in the United Nations system, but I spent a lot of time in 5 star hotels getting really good food talking about human trafficking and debating topics and so forth. We were never close enough to the action.

The NGOs. They work well on the community level, but when it comes to understanding the businesses where human traffic could be associated, they don't really have an understanding of that.

And as a result of that, many of them try to kind of sensitise communities to various things, but they don't understand the driving force of migrants and workers wanting to do things, taking risks and so forth. So when it comes to that, you have a lot of human trafficking force, modern slavery that takes place.

Now as a result of these businesses doing these things, ill gotten gains happen as a result. This is basically money that is created from illegal activities. But up until recently most financial institutions haven't really understood much about this. And what they know is that human trafficking is out there and it's this nebulous kind of thing that's occurring and so forth, but they haven't had the specificity.

So what we're seeing now in the anti money laundering world is not based on the government, but far more based on the financial institutions, legal firms, real estate agencies and accounting firms, coming to the conclusion that they have to address this.

So you see typology related to trafficking, modern slavery on fishing boats, manufacturing, agriculture and so forth. And the idea is to basically take that information and then apply it to identifying red flags and then running that against big data.

An accountant saves the day

This is a typical example. In the United States there was a nail salon chain run by a group and the chain had hours from 9:00 o'clock in the morning till 9:00 o'clock at night and people assume that's when the business hours were taking place. But an account and found that there was a transaction taking place, two, three, 4:00 o'clock in the morning all around $US 200. When they looked into it, they came to realise that there was a trafficking ring being run in that particular business.

And the typology was set up in the red flag indicators would be a particular type of business transactions after hours of a certain amount. They then ran that data against the big data and they were able to find patterns and so forth and that's obviously how a lot of anti money laundering activities take place.

Government oversight is superficial

But back to the question of the government's oversight related to this, it's very superficial. It's not very specific. It doesn't provide the specificity that's required in order or for institutions to really understand what the expectation is.

And so at present, it's more of kind of a policy paper exercise than something that is a mandated. That however, is changing because what we're seeing as sustainability and ESC become relevant and important, and as consumers come to accept the fact that companies have to do right by the world and they have to ensure that they are not supporting anything that would be perceived as exploiting of people, then that pressure is translating into organisations stepping up and doing more related to addressing money laundering.

One other thing that's coming into the equation is the fact that human trafficking is expanding into scam centres. It started in South Asia, but now it's expanding all over the world. According to United Nations, there's about a quarter of a million young educated asians that have been trafficked into Cambodia, Myanmar and Lao to work in scam centres.

They're generating tremendous amounts of money. That then has to be laundered and a new area that we're spending a lot more time focusing on related to anti money laundering is, how do those proceeds that are in crypto that get transferred into it fiat or other types of currencies, how does that get laundered?

And we recently saw, for example, in Singapore, a major case where something like 3 billion dollars was being laundered from these types of sites. So the point I'm making is that for [gateway sectors - law accounting, real estate and finance] to really understand what they need to do, what they need is:

• regular updates
• awareness raising on the topic of modern slavery on the topic of human trafficking
• what are the trends
• what are the directions that it's going in
• what are we seeing in terms of money laundering approaches

And based on that we'll make a difference and eventually I think that the legislation within these countries will catch up, but it's still far behind any kind of a mandate that has any kind of teeth so it's up to the [gateway sectors] to do it themselves.

First AML: With the looming introduction of AML / CTF laws to Australian tranche 2 entities (real estate, law and accounting), many people and industry bodies are fighting the need for this regulation. We see this fight and annoyance in established markets such as the UK as well.  Companies are reducing their spend on compliance. Senior executives bemoan the burden and cost of compliance. Based on your first-hand experience with the human impact of money laundering, what would you say? Why is AML so important?

Matt Friedman: First of all, legislation is often resisted and then when it comes into play, the organisations just say, okay, well, let's get on with it.

So in the UK prior to the UK modern slavery act, there was a lot of resistance and a lot of companies said, "It's expensive. We can't do this. We don't want to do this." And then it got over the line and they were like, "okay, what do we need to do?"

"You guys have to be a part of [AML], because you're already a part of money laundering and you may not even know it."

So I think you're gonna have the same type of thing here. If the [industry bodies] can reduce it or prevent it from happening then they'll put some effort into it. But I think what will eventually happen once all of this is set and the ink has dried, companies will get on with it.

Now, when it comes to anti money laundering, the expectation has often been that the financial institutions have to do all the work, but money laundering takes place in all different types of sectors. It happens in real estate, it happens in luxury cars, luxury goods. It happens in all kinds of different forms. And as a result of the financial institutions, having a limited scope to be able to address things, it has to be expanded to other organisations.

So the reason why this legislation is moving forward is because governments recognise that it has to be a cooperative activity with multiple sectors coming together.

They're not saying to the real estate or legal or accounting sector that you have to do this by yourself. It'll be in partnership with the banks and the financial institutions and financial transactions and law enforcement and everything else.

They're just basically saying that you guys have to be a part of something because you're already a part of it, and you may not even know it.

So understanding anti money laundering as it relates to your specific business helps you to understand if you see red flags that you want to report. And it helps you to understand whether or not something doesn't feel right you know what to do in that particular case.

And I think it's the type of legislation that's been long overdue. I think a lot of organisations, if they understood why they're doing it, because off the backs of people who have been exploited, this money has been generated and then it's going through your system. A lot of people wouldn't like that. They don't like to know that the deals they're doing are from money that is generated from bad things taking place in the world.

So I think it'll be something that will be accepted and it will move forward and eventually 3 years from now we'll be looking back and it'll just be a standard part of what these organisations do. Accepting this as part of their regular responsibility to do due diligence to ensure that their business is positive and doing right by the world.

First AML: So the final question. You’re now CEO at The Mekong Club, whose goal is to uncover and stop the business of human slavery. If there was one piece of advice or encouragement you’d give AML Compliance Officers or Money Laundering Reporting Officers in relation to how they are supporting the goal of The Mekong Club, what would it be?

Matt Friedman: I have come into contact with a lot of analysts, people who on a day to day basis are trolling through the data, looking at the indicators, collecting information, writing out the reports and so forth. I often have them say to me, "Well nobody really pays too much attention to our particular division. They don't really give us the resources that we they need. We don't get the pat on the back that we feel like we deserve for the hard work we're doing."

And usually what I do is I segue into this, "Ok, let me give you an example of a particular case. There was a financial institution that was supporting a fishing business.So a typical scenario in Thailand is that a 15 year old boy will be told that he's gonna go on a fishing boat and he's gonna make lots of money and he'll go out for about 3 months and he'll come back and you know, he'll be a hero to his family and forth.

The boy doesn't realise he's been trafficked on the boat. The boat goes out, but it stays out for 4 years. This poor kid will end up working 14, 15, 16 hours a day. Every day. If he doesn't he gets beaten and tortured. The only food he'll eat is rice and fish.

In order to get him to work, they give him strong stimulants. And as a result of that his body's constantly on these drugs and if he gets sick then they throw him off the side of the boat. If he lives at the end of the 4 years, the boat comes in, he doesn't get anything.

And I tell these types of stories and relate them to the fact that the AML person is working for a particular organisation that could have association with that type of trafficking business. And all of a sudden the person perks up and says, "well, yeah, I never really thought of it that way."

And so then I'll go into an analysis with them. You do these activities. You look at the transactions, some of the transactions look a little bit fishy, you get trained on what you need to do with things that don't look right and you do these suspicious transaction reports. You're doing it not because of your organisation but because law enforcement will review the reports and identify what percentage of these things they want to address.

So a certain percentage of what you're doing results in law enforcement, going deeper into the situation, identifying where these problems exist and fixing them. Did you realise that you're part of the solution? What you're doing protects your company and that's a good thing, but it also helps the world be a better place. So by you doing that, it's heroic.

But for you to be able to do this, you need to have good awareness of the issues of human trafficking and how it works, what the typologies are, what the red flags are and so forth. And this is why organisations like mine, The Mekong Club, are working with companies to help them to understand where the vulnerability is.

Another case, I was brought in to a company and I started off by saying I'm gonna talk about modern slavery. Somebody raised their hand and said "Well, we don't have slavery. We haven't had slavery for years and years." I said, "Okay, let me define that modern slavery is when a person is tricked and deceived into a situation where they lose control of their life and they're held in place. That's modern slavery, it's human trafficking. It's forced labour."

So we started giving cases and all of a sudden they people were saying "Oh, yeah, in my organisation somebody came in and they basically were managing 6 or 7 people and they didn't let those other people talk to us. I think there was a problem." They didn't know about it because they didn't know about it.

And once they did, all of a sudden, they had that aha moment, but they're like, oh, yeah, I see what you mean. We do have this interface with human trafficking and other crime.

So the point I'm making is that as MLROs or AMLCOs or analysts looking at anti money laundering, you have a role in helping to address whether or not something bad is happening.

And if you do your job and you're able to then get the authorities to address this, that's heroic.  You contributed to helping people, you may not see it, but it's there.

And that's an important point that I always try to get across to a lot of people who think that their job is very routine. In fact, it really isn't. It's very necessary and it helps the world be a better place.

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