Indeed, “Second Chance” or “Fair Chance” hiring — when done right — is good for business. Companies can fill workforce gaps and reduce turnover, increasing productivity and cutting on-boarding costs. This practice also has community benefits and is a place where corporate value and social values dovetail. When people with criminal records are employed, economic activity and new tax bases are created, and public safety increases.

A 2021 survey of human resources professionals found that 81% believed that the quality of workers with criminal records is generally the same or better than workers without records, with nearly identical hiring costs. Studies have also shown that retention rates are higher, turnover is lower, and employees with criminal records are more loyal to their employers once hired.

Recent job openings reports from the U.S. Bureau of Labor Statistics showed thousands of open positions in accommodation and food services and in manufacturing — just two of the many industries in which talented people who happen to have criminal records could fill the labor gap.

Offering a second chance

Second-chance hiring is good for employers’ bottom lines in whatever industry they operate. Fortunately, many more business leaders are also recognizing the significant value in second-chance hiring. The Second Chance Business Coalition, led by Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., and Craig Arnold, Chairman and CEO of Eaton, has brought large businesses into the space.  Corporations such as Walmart, McDonalds, Verizon, Accenture, and Koch Industries are among more than three dozen companies that have been brought together by the coalition to work on this issue.

When I was incarcerated, no one asked me for money, but nearly everyone asked me to help them get a job after they were released. Today, I work with businesses to help them develop organizational and risk management strategies to better recruit and retain people with criminal records.

A 2021 report from the Alliance for Safety and Justice estimates that one-third of American adults — roughly 78 million people — have a criminal record. The problem is even worse for Black men. A University of Georgia study found that, as of 2010, 33% of Black men had a felony conviction compared to 8% for all adults.

Unemployment also has been an inescapable by-product of a criminal record. The Prison Policy Initiative calculated that the unemployment rate for people with criminal records is over 27%. By contrast, the country’s overall unemployment rate currently stands at just 3.5%.

Expungement as a risk management tool

Expungement, or record-clearing, is a powerful risk management tool for businesses, but the system can vary drastically among states. For example, a minor drug offense in Florida can stay on a person’s criminal record for life, while a much more serious offense that involved prison time may be expunged in another state. When an employer performs a background check, the Florida person who never served a day in jail will be classified as a “felon” while the person who did years in prison will not.

Fourteen states now broadly allow felonies and misdemeanors to be expunged, while another 23 states have narrower expungement criteria for felonies and misdemeanors. Five other states allow expungement only for pardoned felonies and certain misdemeanors, and three states and the District of Columbia allow only misdemeanor expungement. Five states and the federal system have no expungement law. Without broad record-clearing laws, a person with even a minor criminal conviction will always wear that scarlet letter.

Broader expungement laws have risk management benefits as well. This creates additional issues for chief human resources officers, corporate general counsels, and employment lawyers. Most businesses will never learn of an expunged record, which generally adds additional protections against negligent hiring cases and creates no additional work for corporate staff. In contrast, when a background check has a criminal conviction, the business may have to take additional steps before it can hire the person under the Fair Credit Reporting Act, applicable state laws, and its own risk management strategy.

Without expungement, the risk management landscape is largely governed by state law. For example, Colorado law prohibits an employee’s criminal record from being introduced as evidence in a lawsuit against an employer unless there is a direct relationship between the criminal history and the underlying facts of the claim (Colo. Rev. Stat. Ann. § 8-2-201(2)(a)(I)). Florida — a state without a record-clearing process — protects employers from a negligent-hiring presumption in cases in which the criminal-records check “did not reveal any information that reasonably demonstrated the unsuitability of the prospective employee” (§ 768.096, Fla. Stat.).

Hiring and retention are core business functions and are not an option for companies to achieve success. Unlocking this relatively untapped talent pool can help businesses grow and thrive, creating profits for the business and benefits for its stakeholders, employees, and surrounding community.

Hear more about John’s work, his former legal career, and his journey from prison to expert on re-entry into society after prison on Episode 108 of The Hearing: A Legal Podcast from Thomson Reuters.

Even before the collapse of FTX, complaints from consumers who were hit by other types of digital currency losses have been rising at an alarming rate, the CFPB reported. The CFPB report said the crypto market has become a magnet for fraudsters who see little chance that their schemes will be detected due to the absence of investor protection and the opaque nature of the market.

Crypto firms hiding behind “terms & conditions”

The fledgling crypto industry’s $2 trillion market, made up of complex and illiquid digital assets, lacks controls and account management operations to handle customers’ problems, the CFPB report suggested. The firms often “hide behind terms and conditions” to delay transactions when customers try to claim their crypto assets.

The report found that despite marketing claims that they offered “immediate access” to funds, some crypto firms have often delayed or denied redemptions based on “identity verification issues, security holds, or technical issues.” Many customers also reported the transactions were settled at prices far below quoted levels when unexpected or unexplained fees were tacked on. Some firms cited “market spreads” that led to payouts far below quoted prices. Further, the transaction concerns were most often handled in some form, the CFPB report said, even if they were settled on disadvantageous terms for consumers.

The largest complaint category, representing about 40% of complaints, involved fraud-related matters, and sometimes included use of social media by digital currency participants in a potent mix of deception and opaque fund movement. The CFPB reported that in many instances of fraud reports from customers, the transaction provider declined to accept responsibility or to help in recovering funds, arguing that since they act as intermediaries they are not contractually required to act. In some cases, they required customers to submit to “mandatory arbitration” and clauses that prohibited them from joining class actions.

US regulators have said that since the crypto firms operate from offshore domiciles, they have only limited powers to intercede when fraud surfaces. The CFPB itself said its “complaint bulletin” was meant as a risk warning, but the agency went no further in committing its own enforcement division to pursuing wrongdoing.

Enforcing crypto fraud “time-consuming” 

The CFPB, with its own packed rulemaking and enforcement agenda, suggested that pursuing bad actors would be a drain on agency resources since the anonymity of crypto “makes tracing crypto-assets stolen by fraudsters more time consuming for regulators and law enforcement.” The agency said it would continue to log complaints and follow up with efforts to recover funds from crypto firms it could reach; however, in most cases, it said it would refer complaints to the Federal Trade Commission or other law enforcement authorities.

In its bulletin, the CFPB said the fraud complaints ranged from sophisticated “nation-state” level operations to the types of social engineering scams or cyber breaches seen in ransomware attacks by bad actors seeking payments in hard-to-trace cryptocurrencies. Among the leading scam methods the CFPB noted were: i) playing on a victim’s emotions to extract money or posing as customer service representatives to gain access to customer accounts; ii) using social media posts or targeting different communities in affinity attacks aimed at younger populations, Black and Latino communities, older consumers, and service members; and iii) impersonating crypto-asset developers, founders of major websites such as YouTube, or the official accounts of governments to solicit crypto-asset donations to help the people of Ukraine.

The CFPB also described various tactics that crypto firms used to evade or delay regulations or returning assets to customers, including: i) patterning transactions by using many small transactions to evade money laundering and fraud controls; ii) freezing consumer assets immediately prior to entering bankruptcy or using decentralized finance (DeFi) as part of the crypto-asset ecosystem; and iii) using hacked SIM cards and mobile phone numbers to activate and take control of users’ credentials, or linking transactions and a crypto address with a consumer’s identity on their other transactions.

While the CFPB’s bulletin was intended as a warning to consumers, it cited one area in which it might take direct action — the use of deceptive claims of government savings account insurance, which is guaranteed by the Federal Deposit Insurance Corporation (FDIC). In a May announcement, the CFPB said it could bring action under the Consumer Financial Protection Act, which prohibits any fraud involving deceptive claims around FDIC insurance.

“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” said the CFPB’s Chopra. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto assets. We will continue our work to keep the payments system safe from fraudsters targeting Americans.”

At the 21^st Annual Anti-Money Laundering & Anti-Financial Crime Conference, held by the Association of Certified Anti-Money Laundering Specialists (ACAMS), Rebecca Kiethley, a Federal Bureau of Investigation (FBI) fraud specialist, explained that people over 70 years of age control 75% of the wealth in America, and over the next 10 years somewhere between $30 trillion and $68 trillion in assets is expected to be transferred from the Baby Boomer generation to their Gen X and Millennial generation heirs.

Criminals know all of this, of course, and they are preparing to steal as much of that money as they can.

According to the FBI’s 2021 Elder Fraud Report, seniors over 60 lost more than $1.7 billion to fraud last year (a 74% increase from 2020), with the average victim losing $18,246. In fact, people over 60 lost $239 million in 2021 to investment schemes alone, many of which were get-rich-quick scams involving digital assets, or cryptocurrencies. And it is estimated that for every 1 complaint the FBI receives, 44 go unreported.

Crypto scammers target seniors for several reasons. In addition to seniors being more trusting of people, they also tend to be less knowledgeable about technology in general, and digital assets in particular. Worse yet, many people currently in their 60s who have not saved enough for retirement are now trying to “catch up,” which makes them vulnerable to investment schemes that promise quick, large returns.

An abuse of trust

Speaking at the ACAMS conference, Kiethley said that seniors are most likely to fall victim to investment scams, but they can also be taken in by romance scams, Ponzi schemes, fake lottery prizes, tech-support scams, real-estate swindles, or people pretending to represent a government agency such as the IRS, Medicare, or Medicaid.

Unfortunately, victims of such scams are much less likely to get their money back if the scheme involves crypto, due to the anonymous, decentralized nature of digital currencies. The FBI has created a special virtual-asset investigative unit to combat an expected rise in crypto crime, and the unit has already had some success in recovering stolen digital assets using sophisticated financial forensics. The odds of recovering money lost to a crypto scam, however, are still very long.

When targeting seniors, many scammers make initial contact via social media or over the phone, pretending to have dialed a wrong number. Scammers often research their target on the internet or social media, then use that information to establish a sense of personal connection with their victim. After gaining the person’s trust through a few friendly interactions, the scammers will move to the next phase: extracting money from their victim.

In a typical crypto investment scam, for instance, the scammer might mention a great crypto investment opportunity and invite the victim to participate by giving them a small amount — $100, for example. A week later, the scammer might show the victim a crypto wallet with $1,000 in it as proof that the investment has paid off. Then the scammer might persuade the victim to “invest” more money — $500 or $1,000 this time — and claim soon after that the victim has made $10,000. Excited by such gains, the victim might then be willing to part with $10,000 or more, after which both the scammer and money disappear.

Investment scams are the most common ones involving cryptocurrency, but other types of fraud can involve digital assets as well. Indeed, according to the FBI’s Elder Abuse report, “cryptocurrency is becoming the preferred payment method for all types of scams,” because digital assets are so difficult to trace.

How to recognize elder fraud

Because seniors are so vulnerable to such tactics, government agencies, law enforcement, regulators, and bank personnel are all ramping up efforts to educate the public and encourage training that teaches front-line personnel how to recognize signs that a senior is being scammed — and if so, where to report it.

Mike Brunow, who oversees the criminal money laundering and fraud division of the United States Postal Service, told the ACAMS audience that there are a number of red flags for elder abuse of which front-line bank workers and other financial personnel should be aware. These red flags include:

• • • customer behavior that is out of character;
    • a sudden change in deposit habits;
    • someone unfamiliar showing interest in the customer’s financial affairs;
    • a customer adding someone unexpected to their bank security card;
    • a customer who purchases a large number of pre-paid cards; and
    • unorthodox transactions or money transfers.

Bank employees who suspect foul play can try to engage a customer in conversation to find out more, or, failing that, file a Suspicious Activity Report (SAR) detailing the circumstances and reasons for suspicion. Also, anyone can file a complaint with the FBI’s Internet Crime Complaint Center.

Trying to help seniors who are experiencing some form of cognitive decline can be tricky, however. Bank employees and police investigators are not doctors, after all, and bank customers are technically free to do whatever they wish with their money.

According to another ACAMS speaker — Jessica Clemens, assistant VP of risk management with Timberline Bank in Grand Junction, Colo. — another problem is that even if a scam is uncovered, it is sometimes difficult to convince seniors that they are being duped.

“These people often don’t realize that they are victims,” Clemens says, adding that then the question becomes, “What do we need to do as a community to educate them — to say you are being taken advantage of, that the lovely individual at the other end of the line is never coming to see you, and the car full of cash is never going to show up?”

Approximately 17% of the US population is over 65 years of age, and that number will climb to more than 20% by 2030, according to Statista. And to crypto scammers, those numbers mean opportunity. To everyone else, they should be a wake-up call — a push to expand awareness and prevention efforts and ensure that the oldest among us are not being fleeced by criminals posing as friends.

The DOJ’s action resulted in the arrest of 36 defendants in 13 federal districts in alleged fraudulent schemes involving telemedicine, cardiovascular and cancer genetic testing, as well as durable medical equipment. The investigation targeted schemes involving the payment of “illegal kickbacks and bribes” by laboratories and others in exchange for the referral of patients by medical professionals working with fraudulent telemedicine and digital medical technology companies. The Centers for Medicare & Medicaid Services (CMS) Center for Program Integrity also announced administrative actions against 52 providers involved in similar schemes.

Telemedicine schemes accounted for more than $1 billion of the total alleged losses associated with the enforcement actions, according to the DOJ. A September OIG report identified $127 million in high-risk billing for telehealth services to Medicare during just the first year of the COVID-19 pandemic.

OIG special fraud alert

The OIG also has conducted dozens of investigations into fraud schemes involving companies claiming to provide telehealth, telemedicine, or telemarketing services. In some schemes, telemedicine companies paid physicians and other practitioners kickbacks to write orders or prescriptions for “medically unnecessary” durable medical equipment, genetic testing, wound care items, or prescription medications that resulted in the submission of fraudulent claims to federal healthcare programs.

The OIG fraud alert identifies the way telemedicine companies use kickbacks to “aggressively recruit and reward” practitioners to order or prescribe medically unnecessary items and services for patients who are solicited and recruited by the telemedicine companies as a common element of these schemes. The telemedicine companies pay the practitioners for ordering the services or prescriptions for patients “they never examined or meaningfully assessed” to determine the medical necessity of the items or services before they are ordered.

Often the amount telemedicine companies pay to the practitioner correlates with the “volume of federally reimbursable items or services” the practitioner orders. Not only do these volume-based fees implicate the federal anti-kickback statute, they can also “corrupt medical decision-making, drive inappropriate utilization, and result in patient harm,” according to the OIG alert.

Suspect characteristics of telemedicine arrangements

As part of its fraud alert, the OIG developed a list of “suspect characteristics” based on its experience investigating telemedicine fraud. Factors that suggest an arrangement presents a “heightened risk of fraud and abuse” include:

• • • The patients for whom the practitioner writes orders were identified or recruited by the telemedicine company, telemarketing company, sales agent, call center, at a health fair, or through internet, television, or social media advertising for “free or low out-of-pocket cost items or services.”
    • The practitioner does not have sufficient contact with or information from the patient to “meaningfully assess the medical necessity of the items or services ordered or prescribed.”
    • The telemedicine company pays the practitioner based on the volume of items or services ordered or prescribed but characterizes the payment as being based on the number of medical records the practitioner reviews.
    • The telemedicine company only provides items and services to federal healthcare program beneficiaries and does not accept insurance from any other payor.
    • The telemedicine company may claim to only provide items and services to individuals who are not federal healthcare program beneficiaries but actually bills federal programs.
    • The telemedicine company provides only one product or type of product such that a practitioner’s treat plans are predetermined.
    • The telemedicine company does not expect any follow-up care with the patients after the item or service is ordered.

Practitioners entering into arrangements with telemedicine companies that exhibit one or more of these suspect characteristics may face criminal, civil, or administrative liability depending on circumstances of the case.

Pandemic expansion of telehealth services

During the pandemic, Medicare expanded the areas where telehealth could be used and also increased the number of services available via telehealth from 118 to 264. Although necessary to ensure individuals who could not receive medical care in person due to pandemic restrictions, the increased use of telehealth also increased the risk of fraud.

In a survey of 742,000 providers who billed Medicare for telehealth services during the first year of the pandemic, the OIG “identified 1,714 providers whose billing for telehealth services during the first year of the pandemic poses a high risk to Medicare.” The providers billed for telehealth services for “about half a million beneficiaries” and received a total of $127.7 million in Medicare fee-for-service payments. Payments made by Medicare Advantage plans to providers are not reported to Medicare, so the amount lost to fraud is likely much higher.

The OIG also found that 991 providers or “more than half of the high-risk providers” it identified were part of a medical practice with at least one other provider “whose billing poses a high risk to Medicare.” This suggests that the practice groups “are encouraging such billing among their associated providers,” according to the OIG. Additionally, 41 of the providers with high-risk billing appeared to be associated with telehealth companies, although Medicare data does not systematically identify those companies.

Although the review found only a “small proportion” of providers were high-risk billers, the OIG made five recommendations to the CMS to reduce the risk of fraud, waste, and abuse in telehealth. The recommendations include actions to:

1. 1. 1. strengthen monitoring and targeted oversight of telehealth services;
      2. provide additional education to providers on appropriate billing for telehealth services;
      3. improve the transparency of services when clinical staff primarily deliver the telehealth service;
      4. identify telehealth companies that bill Medicare; and
      5. follow up on the high-risk providers identified in the OIG report.

Although the COVID-19 pandemic may be easing in the United States, the risk of fraud remains. Unscrupulous providers continue to exploit the vulnerabilities of providing remote services, and payers should remain vigilant to their schemes.

Portions of this article were previously published by Thomson Reuters Regulatory Intelligence.

Meanwhile, enforcement activities are also taking a more aggressive turn, with regulators in one jurisdiction going so far as to classify casino money-laundering misconduct as a threat to financial stability and security.

Canada: Public inquiry elicits calls for reform

Findings from a regulatory inquiry into money laundering in the Canadian province of British Columbia (BC) are increasing scrutiny on the gaming industry across that country and beyond. Earlier this month, the Cullen Commission, a public inquiry led by BC Supreme Court judge Austin Cullen, submitted a report to the federal government that looks at whether acts or omissions by regulators and individuals contributed to money laundering in the province. The report covered 133 hearings, including testimony from gaming officials, police officers, and financial crime experts, which were held as a part of the inquiry.

The commission found serious culture failings in the gambling industry. Findings from the inquiry support the possibility that compensation incentives at the British Columbia Lottery Corp., a government agency responsible for oversight of gambling in the province, pressured gaming officials to prioritize gambling revenue over compliance with provincial federal anti-money laundering laws.

The Commission noted that “staggering amounts” of illicit funds are being laundered provincially. Although the inquiry did not quantify the exact figures, the report provided evidence to support the assumption that the amounts run into the billions of Canadian dollars per year, in British Columbia alone, and are increasing over time.

The 1,800-page report was recently made public and has elicited calls for stronger enforcement and regulatory reform of anti-money laundering requirements applicable to the Canadian gaming industry. Appointing a dedicated anti-money laundering commissioner and lowering the threshold for requiring proof of funds for casino transactions conducted in cash are among some of the recommendations that have been made by the Cullen Commission to address money laundering risks in the gaming industry.

Australia: Reforms & tighter supervision underway

Misconduct and money-laundering scandals at two major casino operators, Star Entertainment Group and Crown Resorts, have spurred wholesale regulatory reform of gambling regulations in Australia. A series of inquiries into Australian gaming operators found serious compliance failings at casinos that were operated by the two groups as well as shortcomings at state-level casino regulators that allowed money laundering to continue unabated for years.

An inquiry in the Australian state of New South Whales found that The Star and its management facilitated more than AU$900 million in money laundering for junket operators. Regulators in Victoria, another state, found that Crown had processed AU$164 million in China UnionPay card payments in violation of anti-money laundering laws which prohibit gambling funds to be withdrawn using credit or debit cards. Crown’s casino license was recently reinstated with conditions after being suspended in 2020 for anti-money laundering compliance failures.

Regulatory reforms currently underway include proposals to expand cooperation and enforcement between the Australian Transactions and Reports Analysis Centre (AUSTRAC) and state-level regulators. Further, AUSTRAC has filed a lawsuit against Crown Resorts, citing “serious and systemic noncompliance” with Australian anti-money laundering laws that has left the country’s financial system “vulnerable to criminal exploitation.”

The states of Victoria and Queensland have introduced legislation to provide increased oversight and enforcement powers to their respective state casino regulators. Queensland casino operators will be subjected to stricter compliance requirements and tougher penalties for regulatory violations; meanwhile, casino operators in Victoria will have to comply with expanded regulatory reporting requirements. Overall, the reforms suggest that the gaming industry in Australia will be subject to a much higher degree of oversight and accountability going forward.

Macau: Risks on the rise for operators

Macau recently greenlighted a new gambling bill that gives its chief executive the authority to revoke gaming concessions granted to casinos on national security grounds or for failure to pay taxes on time. Operators could be forced to give up concessions such as gaming tables or asked to pay additional taxes if they fail to generate sufficient revenue to meet new minimum gaming tax requirements, a development that could have unintended consequences for conduct risk.

Higher tax requirements have prompted concern in the industry which continues to suffer financial losses from limited visitors to the city. Macau’s borders have been mostly closed since the onset of the pandemic in 2020; and, as of June 20, the gambling hub shut most schools and businesses following the discovery of dozens of locally transmitted cases of coronavirus. Although casinos have been permitted to remain open, residents have been asked to stay home, and analysts estimate that revenue for casinos in the coming weeks will be close to zero.

Pressure to generate revenue amid challenging operational conditions could raise conduct and regulatory risk for casino operators in the gambling hub. While Macau has not scrutinized money-laundering risks in the gaming industry with as much rigor as casino regulators in other jurisdictions, law enforcement has acted in cases where cross-border activity and enforcement in other jurisdictions are involved.

Long flagged as high risk for money laundering and organized crime, these operators bring in high rollers to play at casinos, extend credit, and collect debts.

In 2021, local law enforcement arrested 21 individuals, including the chief executive officer of Macau casino junket Suncity, Alvin Chau, for organized crime and money laundering. Suncity was also implicated in a separate investigation by Australian regulators into claims that Star Entertainment Group allowed money laundering to take place inside secret rooms operated by the junket inside Star casinos.

Takeaways

Casino operators in global gambling hubs are facing heightened scrutiny amid a broader crackdown on organized crime and money laundering. Conduct and compliance culture have emerged as two main areas where regulatory reforms are taking aim. As seen in recent enforcement actions in Canada and Australia, culture and conduct at regulatory agencies is as much of an issue as it is in the private sector.

Financial institutions dealing with casino operators and the gaming industry should take note of the current environment of heightened scrutiny and apply enhanced due diligence measures where necessary.

Global fraud rings used numerous scam techniques to drain federal relief programs and defraud unsuspecting victims through phishing emails and texts, bogus social media posts, robocalls, impostor schemes — all highly effective at stealing personal identifying information and pandemic relief funds.

Now, more than two years after the start of the pandemic, law enforcement is looking for ways to recover some of those funds for victims and improve communication between the public and private sectors as a way to prepare for the next pandemic. They are examining the evolution of fraud over the last two years and identifying key takeaways to safeguard for the future.

Early in the pandemic, criminals focused on fraud related to personal protective equipment (PPP) such as N-95 masks and bogus testing kits. But as the US government began to fund stimulus programs through the Coronavirus Aid, Relief and Economic Security (CARES) Act, individuals and organized criminal networks worldwide pivoted their crime schemes.

This has led to a focus on recovering pandemic-related relief and has become an investigative priority for the Secret Service in partnership with government agencies and financial institutions. “Law enforcement is prioritizing the exploitation of pandemic-related relief because the federal funding through the CARES Act attracted the attention of individuals and organized criminal networks worldwide,” says Roy Dotson Jr., Assistant Special Agent in Charge of the Jacksonville Secret Service field office and the National Pandemic Fraud Recovery coordinator.

Partnership is the way forward

Part of Dotson’s job is to act as a point person, addressing ongoing COVID-19 pandemic criminal activity through prevention, mitigation, and investigation. He works in conjunction with his office’s Cyber Fraud Task Forces and with federal, state, local, tribal, and territorial partners, as well as with foreign law enforcement, academia, and the private sector partners, particularly financial institutions.

“I work with law enforcement partners to provide information and training relative to the recovery of pandemic funds — whether through seizure warrants or administrative seizures,” Dotson says.

As he investigated pandemic-related crime over the past two years and spoken to agencies across the country, Dotson has seen a huge uptick in cyber-enabled crime, meaning those crimes that are digital in nature. Whether business email compromise scams, ransomware attacks, data breaches, or the sale of personally identifiable information on the dark web, financially motivated cybercrime is on the rise. And we saw it in some of the biggest pandemic-era fraud scams, including unemployment fraud and theft of PPP loans.

Two scams Dotson specifically points out aren’t all that new — identity theft and money mule networks, in which victims, often unwittingly, launder or move illicit funds for criminals. Dotson has worked hard to share his expertise and resources, and disseminate best practices to law enforcement and financial institutions relative to their core investigations.

Sadly, money mule scams are challenging because the victims are often members of vulnerable populations or come from low-income communities. Money mule scams can happen through fraudulent employment schemes or online dating or romance scams. Dotson says criminals recruit money mules to help launder proceeds derived from online scams and frauds or crimes like human trafficking and drug trafficking. Because money mules add layers of distance between crime victims and criminals, it is harder for law enforcement to accurately trace money trails.

“I speak with elderly persons who respond to an online job opportunity,” Dotson explains. “They don’t really understand they are being manipulated.” The victim will accept an offer of employment from the criminal, and then the criminal will direct the unsuspecting victim to open a bank account in their own name to receive and transfer money.

As the criminal gang’s “employee,” the victim will be asked to receive funds in their bank account and then “process” or “transfer” funds through wire transfers, Western Union, or MoneyGram, ACH, or even US mail. In some scenarios the victims are even instructed to send funds via a bitcoin ATM machine.

Compounding the problem is that the criminals are often international syndicates, including West African groups. “These aren’t just random lone criminals on the internet. The scammers are a full-time operation. This is their focus 24/7. They are much more sophisticated than we give them credit for,” he says.

Improved communication leads to better results

While this may seem daunting, Dotson is optimistic about stopping fraud such as unemployment fraud scams, should another pandemic-like disaster occur. State agencies, which administered much of the COVID-19 pandemic relief funds, have improved their platforms and modernized their process. There are also greater interagency communication. “The states are communicating much better with the Department of Labor,” Dotson says. “At the start of the pandemic, we basically had 54 statewide agencies operating independently from one another.” While this was through no fault of any particular agency, it presented a huge opportunity for criminal organizations to exploit that vulnerability.

In today’s environment, cyber-enabled crime investigations require the skills, technologies, and strategic partnerships in both the cyber and financial realms. Dotson says that investigators can no longer effectively pursue a financial or cybercrime investigation without understanding both the financial and internet sectors, as well as the technologies and institutions that power each industry.

However, Dotson’s office is here to help. “I want to continue to develop great relationships with financial institutions and agencies,” he says. “I can share fraud trends I am seeing that might be novel to their bank — or, if something major goes down, we can get that information out to the community very quickly.”

The services such professionals provide can permit kleptocrats, oligarchs, and politically exposed persons (PEP) to layer their wealth into Western economies where it is difficult for compliance staff and law enforcement to detect and, ultimately, to disentangle any illicit transactions.

Reputation laundering is a growing industry of lawyers, accountants, public relations firms, and image consultants that guide and advise kleptocratic actors and PEPs through a process of rebranding, transforming them from despot to debutante. Often this process involves giving large sums to charities, universities, and political parties, buying citizenship through golden visa schemes, inviting politicians onto their company boards, as well as placing flattering articles about themselves in showcase publications.

Such public relations and marketing companies, operating behind the scenes, offer their clients a shield against accusations and notoriety, officials said.

“It is this rebranding of an unsavory past that is the essence of reputation laundering. By minimizing and obscuring evidence of corruption and authoritarianism in their home country, reputation laundering enables kleptocrats to enjoy their spoils freely around the world,” wrote Tena Prelec, a research fellow at the Department of Politics and International Relations at the University of Oxford in March. “It also allows authoritarian governments to manipulate public perception, sometimes even by undermining the functioning elected representatives in national and international institutions.”

That ability to manipulate public perception by sowing social media with disinformation, and to create a plausible deniability over sources of tainted wealth, distorts these actors’ sanctions and financial crime risk profile. Once reputation launderers have transformed their clients’ social and business image, it is difficult for compliance professionals to differentiate between legitimate and illegitimate activity, or to effectively screen for negative news.

While London has come under fire as a haven for kleptocrats, academic research and the International Consortium of Investigative Journalists‘ Pandora Papers show that such enabling activity is common, with the United States, France, and Portugal among the countries leading the offerings of reputational laundering services. Governments have been slow to address the enabler problem, and enforcement bodies lack the staffing and resource to enforce the rules that do exist, officials said.

Disabling enablers

Lawmakers internationally have been reluctant to clamp down on kleptocrats’ enablers despite increasing concerns about the influence these individuals and their enablers wield in the spread of disinformation aimed at undermining democracies and justifying Russia’s war in Ukraine.

The United States is among the less than 10% of countries that are non-compliant with Recommendation 22 from the Financial Action Task Force (FATF), making the US one of 11 nations that do not require enablers to look out and report dirty money, said Josh Rudolph, fellow for malign finance at the Alliance for Securing Democracy (ASD) at the German Marshall Fund think tank.

In October, the US Congress introduced a bill called the Establishing New Authorities for Business Laundering and Enabling Risks to Security Act (the ENABLERS Act) that would force lawyers, trust companies, real estate brokers, accountants, art and collectibles dealers, public relations firms, and third-party payment service providers to conduct due diligence on the sources of funds.

For the ENABLERS Act bill to be passed into law, legislators must overcome stiff resistance from what Rudolph calls the Four Horsemen: the legal profession, company formation agents, accountants, as well as covert public relations and marketing companies, whose skills can be hired in the service of reputation laundering.

“Legal professionals are the single-most important enabler sector to regulate because they are the most useful to oligarchs and kleptocrats looking to secretly funnel dirty money through law firms’ bank accounts,” Rudolph told the UK’s Royal United Services Institute. “Lawyers are the most obstinate and organized group in their resistance to [anti-money laundering] AML rules. The American Bar Association (ABA) has spent a quarter century in this war of attrition with the FATF.” The legislative strategy surrounding passing the ENABLERS Act has to be very carefully thought out, Rudolph added, including at the stage of scoping the statutory language. “This bill will do is important and has to be accompanied by political strategies to divide and conquer the ABA.”

It will be important to track this legislative initiative, because if Congress fails to pass such legislation, the US Treasury cannot address these enablers. It would instead be forced into playing “small ball” perhaps by repealing some of the enabler exemptions in the previously passed Bank Secrecy Act, Rudolph said.

Part of the reason why is that those responsible for policing cyberspace are often chasing criminals with more advanced technology and skills, and who love nothing better than devising inventive new ways to steal. As if that weren’t bad enough, dedicated cyber thugs already adept at all forms of internet crime — cyber hacks, ransomware, romance scams, SIM card swaps, extortion, fraud, etc. — have now been gifted with crypto, which not only provides thieves with more ways to commit crimes, it also makes them harder to catch.

“If you think about it from the perspective of the cyber criminals, before crypto they had to hack in, steal information, then monetize it, [which often means] hopping it through multiple accounts or cutting in other criminals, introducing risk at every stage,” said Justin Herring, Executive Deputy Superintendent in the Cybersecurity Division of the New York Department of Financial Services. “On the other hand, the monetization chain for crypto is number one, hack in; and number two, take control of the digital asset. There is no number three.”

Crypto crime rising

Herring’s remarks came during a panel on crypto crime at the Thomson Reuters Institute’s recent two-day conference, Manifest Destiny: Risk, Opportunity & Reward Around Digital Currencies. Moderated by Gina Jurva, attorney and manager of market insights and thought leadership content for corporates and government at the Thomson Reuters Institute, the panel, Internal Affairs: Managing Enforcement Actions Around Crypto Crime, explored the many risks that companies operating in the crypto space currently face, as well as efforts by law enforcement and regulators to secure crypto-based financial transactions as these transactions increasingly go mainstream.

On the law enforcement side, for example, the recent enthusiasm for all things crypto has resulted in an exponential uptick in criminal attempts to steal various kinds of virtual assets. According to panelist Elizabeth Roper, Chief of the Cybercrime and Identify Theft Bureau in the New York District Attorney’s office, her office’s tip line has received 45 reports of stolen Non-Fungible Tokens (NFTs) this year, whereas last year they only had one. “Now we have whole team just working on [NFT theft],” she said.

If you have the right system of controls and the right technical tools, you are going to be in a position to see and react to the trends in what criminals are doing.

Cyber and crypto crime has gotten so prevalent, so fast, that Roper warned financial institutions, crypto exchanges, or other online asset providers to be on guard. “You are going to be the target of some kind of cyber-attack,” she said, noting they should expect it, plan for it, “and implement the plan when it does happen.”

Part of that plan should involve developing a relationship with law enforcement before any security breach occurs, she advises, and contacting investigators if and when something does happen. “There can be a real sense of hopelessness when a cyber event happens, and a lot of individuals and businesses feel like there is nothing to be done,” Roper said. However, if the stolen asset is cryptocurrency, “law enforcement actually has a pretty good chance of freezing and ideally recovering those assets.”

On the regulatory side, efforts to adapt traditional anti-money-laundering (AML) and know-your-customer (KYC) protocols into the crypto space are underway, but according to the New York DFS’s Herring, “in many cases that’s going to require tools — such as blockchain analytics — that are different from the tools used in the traditional financial industry.”

Indeed, many of the necessary tools to regulate crypto have yet to be developed, Herring admits, but he said he sees encouraging signs that some in the crypto industry are coming around to the idea that they have a shared responsibility when it comes to protecting their customers’ assets.

Better protection “starts with the right foundation,” Herring explained. “If you have the right system of controls and the right technical tools, you are going to be in a position to see and react to the trends in what criminals are doing.”

The crypto talent wars

Of course, precisely who is going to develop and implement these new regulatory tools is somewhat uncertain, because law enforcement and regulatory agencies are also at a disadvantage when it comes to recruiting tech-savvy analysts and investigators. Tech companies pay significantly more for experienced engineers and coders, Herring and Roper both said, and there isn’t much formal training available. That means people hired by law enforcement and regulatory agencies must be “passionate” about crypto and basically be willing and able to teach themselves.

“If you are interested enough in cyber to read about it in your spare time, then we can work with that,” Herring said, noting that finding such people is a challenge.

In a separate panel discussion, Supply and Demand: Winning the Crypto Talent Wars, panelists explained that engineers who can work in next-generation internet environments such as Web 2.5-3.0 and the Metaverse can basically write their own ticket, yet the talent pipeline coming out of academic institutions is woefully under-equipped.

As a result, organizations looking for next-generation tech talent “are more open to [individuals with] non-traditional backgrounds,” said panelist Adam Posner, of NHP Talent Group — and that includes people without college degrees. “I can’t even tell you the last time I saw a degree required for any of my Web 3.0 companies,” Posner said. “They want to see what you’ve done, how you did it, and what you’re going to do for their organization.” If a candidate has a good foundation of tech skills, he added, many of these companies will put people into a six-week boot camp to “upskill” them — and in many cases, that’s all the education they need to get started.

During his lunchtime keynote speech, however, former Manhattan District Attorney Cyrus Vance Jr. struck a note of caution when he asked conference attendees to step back and ask whether implementing all the ideas under discussion was itself a good idea, considering the massive power shifts, income inequalities, and social upheaval caused by the rise of such tech giants as Facebook and Google.

“Let’s not lose sight of asking the questions,” Vance said, noting that these questions perhaps should have been asked before Mark Zuckerberg, Jeff Bezos, and other tech industrial giants reached “titan” status. “If we knew this was going to be as successful as we think it would be, what rules should we have in place before it becomes so successful that it’s simply too late to ask the questions?” Vance said.

As a result, human trafficking is a year-round concern and law enforcement efforts to tackle it are underway every single day, 365 days a year. Within this, it’s possible to identify certain moments where human trafficking activity is more concentrated, typically at large events such as the Super Bowl, which unfortunately seems to attract human traffickers and global criminal organizations that seek to take advantage of the influx of visitors and temporary workers. Indeed, it’s estimated that up to 66% of the global profits from human trafficking (approximately $150 billion) come from sexual exploitation — and major sporting events have become their own human trafficking Super Bowls.

In the last several years, there has been a drive to target human trafficking activities at the Super Bowl. Law enforcement has worked in cooperation with organizations such as the NFL Super Bowl Host Committee, non-profits, hotels, financial institutions, and even truck stops along the way to enlist their aid in finding patterns that point to human trafficking and sexual exploitation. For example, financial institutions have leveraged their financial intelligence and anti-money laundering capabilities to help identify suspicious financial activity and alert law enforcement through the filing of Suspicious Activity Reports (SARS).

It’s estimated that up to 66% of the global profits from human trafficking come from sexual exploitation — and major sporting events have become their own human trafficking “Super Bowls”.

During this years’ Super Bowl in Los Angeles in mid-February, private agencies (including Thomson Reuters Special Services) partnered closely with law enforcement to support their efforts to investigate and tackle human trafficking taking place around the event. Analysts and data scientists worked with law enforcement to leverage technology and data to help identify and combat this heinous activity and rescue human trafficking victims.

The importance of this action is clear. Just after the Super Bowl, the L.A. Sheriff’s Department announced the results of the investigations, known as “Operation Reclaim and Rebuild” — led by the Los Angeles Regional Human Trafficking Task Force and more than 80 participating federal, state, and local law enforcement agencies, and task forces from across California. The Operation led to 182 arrests for solicitation and 30 arrests for suspected trafficking and exploitation, as well as the rescue of 65 adult victims and seven victims who were minors. Each trafficker may have hundreds of victims and each arrest could lead to many other traffickers down the road as law enforcement continues to carry out their investigations within each of their networks.

“Operation Reclaim and Rebuild is a state-wide operation which displays the mutual commitment of California law enforcement, social service agencies, and victim service providers in the fight to end sex trafficking,” the Los Angeles Regional Human Trafficking Task Force commented in a statement. “The L.A. Regional Human Trafficking Task Force is an example of how individual entities can be far more effective, when they join together in a shared mission.”

While human trafficking unfortunately intensifies during large events, often leading to a significant increase in the purchase of adults and children for commercial sex — this is an everyday problem that takes place in large and small communities throughout the United States and around the globe.

Private agencies and law enforcement that join in a shared mission can play a role in empowering data for good to inform the way forward and help tackle this horrific global crime.

You can learn more about how agencies work together to combat human trafficking here.

Only through a strategic focus and united effort will we abolish the ever-present threat of human trafficking globally.

In 2000, the U.S. government and the global community put traffickers on notice with the landmark passage of the Victims of Trafficking and Violence Protection Act and Palermo Protocol. Since then, governments, international organizations, and civil society have taken up concerted efforts to protect survivors of human trafficking and prosecute perpetrators involved. Yet, the extent of the crime has soared — the International Labor Organization now estimates that the illicit profits in the shadow economy stemming from human trafficking are now in excess of $150 billion.

Indeed, human trafficking is big business and an economically motivated crime that is growing and thriving. Whether for forced labor or sex trafficking, traffickers exploit people because it is profitable; and for the most part, they do so with impunity. Combatting this crime will require a new paradigm and a commitment to change with a time horizon that reaches out beyond the next few months or years.

Crafting a global strategy & fostering collaboration

To counter human trafficking, the world needs a winning strategy, a culture shift, and major investment from the global community — but where do we go from here after 20 years of anti-trafficking work?

First, we would do well if each nation developed a country-specific strategy, like the United States National Action Plan to Combat Human Trafficking, first issued in 2020. A new strategy to leverage a whole-of-government approach must also include promising practices coupled with durable solutions and benchmarks for implementation. Nations would not have to start with a blank slate, in fact, the Organization for Security and Co-operation in Europe (OSCE) provides such a toolkit for member nations and states to develop their own action plan. Then, regions of the world could compare notes from their action plan and take a coordinated, complementary approach, allowing each to act as a force-multiplier to stave off traffickers who operate within transnational organized crime syndicates.

Second, we need a culture change resulting in a fundamental paradigm shift that currently allows communities to be exploited within their own ecosystem. Indeed, efforts to educate community members to recognize the genuine signs of human trafficking should continue and expand. Informing the public of the social, economic, and national security impact human trafficking has on society is important, but we must do more. We must empower children, youth, parents, and caregivers with the critical knowledge to keep themselves and others safe from exploitation.

We need to go beyond awareness-raising and implore citizens to take a stand against the exploitation of people. Further, we should commit to not enabling human trafficking by avoiding the tough questions about labor in global supply chains associated with industries such as electronics, textiles, and food. Consumers deserve to know whether the goods they purchase have been produced through forced labor, and what their financial institutions are doing to ensure they are not facilitating profits from human trafficking to be laundered through their company.

Lastly, to make a significant impact on human trafficking, it is essential that we go upstream and enhance institutional capacity to stop traffickers in a more powerful way. Investment in dedicated personnel, data, and technology tools, as well as financial forensic capabilities can also act as critical resources for law enforcement and service providers. To be sure, these capabilities must be accompanied by a significant financial investment from both the government and the philanthropic sector that is equal to the magnitude of the problem.

There are no easy fixes or quick wins that will stem the activities and profits from these crimes of exploitation. However, a cohesive and focused strategy, coupled with sustained global efforts, can and will turn the tide against traffickers and make a significant dent in the problem over the next years and decades.

As Gary Haugen, a global justice leader of the International Justice Mission, once said, “The victims of injustice in our world do not need our spasms of passion. They need our long obedience in the same direction – our legs and lungs of endurance.” Haugen is correct — we must coordinate and implement substantive solutions together but then resolve ourselves to combating human trafficking for the long haul, for our commitment to do so is the key to our success in our shared pursuit of justice for survivors.

If you believe you may have information about a trafficking situation, call the National Human Trafficking Hotline toll-free at 1-888-373-7888, or text the National Human Trafficking Hotline at 233733.