What AML Professionals Need to Know About Online Child Sexual Exploitation

Online child sexual exploitation is a growing global crisis that demands the urgent attention of AML professionals. The Financial Action Task Force (FATF) recently issued a comprehensive Report on Detecting, Disrupting, and Investigating Online Child Sexual Exploitation, outlining the escalating scale of these heinous crimes.

The statistics of the report are both staggering and heartbreaking:

• At a global level, researchers from the University of Edinburgh estimate that 300 million children worldwide– or 1 in 8 of all children – are affected by online sexual abuse and exploitation annually.

• The 2022 INTERPOL Global Crime Trend Summary report revealed that 62% of member countries expect these crimes to “increase” or “significantly increase” in the near future.

It is clear that the threat of online child sexual exploitation is not just growing but intensifying, fuelled by the proliferation of technology, encrypted communications, and the global nature of financial transactions.

Understanding the Crime: Types and Dynamics

The FATF report categorizes online child sexual exploitation into two main types:

1. Live-streamed Sexual Abuse of Children - This involves broadcasting real-time sexual abuse of children for financial gain. Consumers pay to watch and may even direct the abuse remotely.

2. Financial Sexual Extortion of Children - In this scenario, children are coerced into sharing sexually explicit material, which is then used to extort money from them or their families.

The report also highlights the profiles of victims, consumers, abusers, and facilitators:

• Victims: Vulnerable children, often coerced or forced into sexual acts for live-streaming or extortion.

• Consumers: Typically located in Australia, Europe, and North America, willing to pay to view live abuse.

• Abusers and Facilitators: Individuals who organize or carry out the abuse, often located in high-risk jurisdictions where law enforcement is weaker.

How Abusers and Facilitators Launder the Proceeds from Online Child Sexual Exploitation

One of the most concerning aspects of online child sexual exploitation-related transactions is their unsophisticated but highly concealed nature. Due to the small amounts and repetitive patterns, these payments can easily fly under the radar.

Common Money Laundering Techniques:

• Small-Scale Laundering: Individual payments are small but add up over time, with quick cash conversions or bank deposits for day-to-day use.

• Minimal Sophistication: Often involves direct purchases of lifestyle goods like electronics or cars, as well as basic cash-out methods.

• Virtual Assets for Anonymity: Virtual assets are increasingly used to mask the identity of consumers and facilitators, making tracking harder.

• Building Trust: Facilitators sometimes build long-term relationships with consumers to secure repeat payments, or even request additional funds for medical or personal reasons.

Red Flags for AML Professionals

The FATF report provides practical guidance on how AML professionals can detect financial transactions linked to online child sexual exploitation. Recognizing these red flags is crucial for compliance professionals to play their part in safeguarding children.

Key Red Flag Indicators:

1. Unusual Transaction Patterns:

   • Small, even-denominated payments (10-200 EUR) made repeatedly to high-risk jurisdictions.

   • Payments from developed countries to jurisdictions known for child exploitation.

   • Irregular payments, particularly during late-night hours, indicating cross-time-zone transactions.

2. Suspicious Payment Descriptions:

   • Vague or deceptive terms such as "gift," "support," "medical bills," or "family assistance."

   • Payments labeled with social media references or suspicious usernames.

3. Payment Methods and Techniques:

   • Use of Money or Value Transfer Services (MVTS) and P2P payment systems (e.g., PayPal).

   • Virtual assets (VAs) transferred through Virtual Asset Service Providers (VASPs) to obscure the source of funds.

   • Direct bank transfers or the use of prepaid cards to facilitate anonymity.

4. Financial Characteristics:

   • Repeated low-value transactions from the same consumer to multiple recipients.

   • Purchases of VPN services or video capture software.

   • Transactions made through online gaming or adult entertainment platforms.

Why This Matters to AML Professionals

While the amounts per transaction may seem trivial, the cumulative impact is substantial. Detecting and reporting suspicious transactions could mean the difference between a child being rescued or remaining trapped in a cycle of abuse.

The devastating impact on victims is often severe and long-lasting, with consequences that resonate throughout their lives. As AML professionals, we are not investigators – but we are the first line of defense. We don't know whose child will be next!