[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]





 
                          FOLLOWING THE MONEY:

                         HOW HUMAN TRAFFICKERS

                     EXPLOIT U.S. FINANCIAL MARKETS

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 30, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-71
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           



                             _________ 

                  U.S. GOVERNMENT PUBLISHING OFFICE
                   
 31-327 PDF               WASHINGTON : 2018      
 
 
 
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
              Subcommittee on Oversight and Investigations

                    ANN WAGNER, Missouri, Chairwoman

SCOTT TIPTON, Colorado, Vice         AL GREEN, Texas, Ranking Member
    Chairman                         KEITH ELLISON, Minnesota
PETER T. KING, New York              EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   JOYCE BEATTY, Ohio
DENNIS A. ROSS, Florida              MICHAEL E. CAPUANO, Massachusetts
LUKE MESSER, Indiana                 GWEN MOORE, Wisconsin
LEE M. ZELDIN, New York              JOSH GOTTHEIMER, New Jersey
DAVID A. TROTT, Michigan             VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            CHARLIE CRIST, Florida
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    January 30, 2018.............................................     1
Appendix:
    January 30, 2018.............................................    27

                               WITNESSES
                       Tuesday, January 30, 2018

Banafa, Bassem, Financial Forensics Consultant, Bassem Banafa, 
  LLC............................................................    11
Frundt, Tina, Founder and Director, Courtney's House.............     9
Shelley, Louise I., Founder and Director, Terrorism, 
  Transnational Crime and Corruption Center, George Mason 
  University.....................................................     7
Vance Jr., Hon. Cyrus R., District Attorney, New York County, 
  District Attorney's Office.....................................     6

                                APPENDIX

Prepared Statements:
    Banafa, Bassem...............................................    28
    Frundt, Tina.................................................    36
    Shelley, Louise I............................................    39
    Vance Jr., Hon. Cyrus R......................................    46

              Additional Material Submitted for the Record

Green, Hon. Al:
    Statement for the record from Christina Bain.................    54
    Statement for the record from Children at Risk...............    55
    Statement for the record from the Mayor of Houston...........    57
    Statement for the record from Project Girls..................    59
    Statement for the record from The Landing....................    60


                          FOLLOWING THE MONEY:

                         HOW HUMAN TRAFFICKERS

                     EXPLOIT U.S. FINANCIAL MARKETS

                              ----------                              


                       Tuesday, January 30, 2018

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. Ann Wagner 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Wagner, Tipton, Ross, Zeldin, 
Trott, Loudermilk, Kustoff, Tenney, Hensarling, Green, Cleaver, 
Beatty, Moore, and Gottheimer.
    Also present: Representative Davidson.
    Chairwoman Wagner. The subcommittee on Oversight and 
Investigations will come to order. Today's hearing is entitled 
``Following the Money: How Human Traffickers Exploit U.S. 
Financial Markets.'' Without objection, the Chair is authorized 
to declare a recess of the subcommittee at any time and without 
objection, all members will have 5 legislative days within 
which to submit extraneous materials to the Chair for inclusion 
in the record.
    Without objection, members of the full committee who are 
not members of the subcommittee may participate in today's 
hearing for the purpose of making an opening statement and 
questioning the witnesses. The Chair now recognizes herself for 
5 minutes for an opening statement.
    One the biggest problems confronting our Government today 
is combating the pure evil of human trafficking, particularly 
trafficking for sexual exploitation. To say that human 
trafficking is a massive problem is to engage in gross 
understatement.
    According to a September 2017 report from the International 
Labor Organization, it is estimated that 40.3 million people 
were victims of human trafficking in 2016 alone. There is a 
reason for this explosive growth.
    Human trafficking is an immensely profitable crime. Profits 
are estimated at $150 billion a year including $99 billion from 
the commercial sex exploitation. Moreover, compared to other 
popular crimes like drug trafficking, human trafficking 
requires very little investment, thus, making it a minimal risk 
and a high reward endeavor.
    As with any large multinational criminal enterprise, the 
life blood of human trafficking is the ability to transfer 
money. If the traffickers are unable to move their ill-gotten 
proceeds or to purchase ads to traffic victims on sites such as 
Backpage or The Erotic Review, their schemes fail.
    Today, Congress has not devoted sufficient attention to the 
vitally important question of how do we ensure that our 
financial markets are not being exploited by these traffickers. 
That changes with this hearing today, which is the opening step 
of the committee's bipartisan investigation into this important 
issue.
    From the testimonies you will hear today, our witnesses 
will make it clear it is time for the U.S. Government and 
Congress to get serious about combating human traffickers' 
exploitation of our financial system. It is important to note 
what this hearing is not about.
    This hearing is not about prescribing solutions. It is 
about gathering information to allow all the relevant 
stakeholders to work together to ensure that this country has a 
comprehensive plan in place to prevent the exploitation of our 
financial systems. I am particularly excited to hear the 
testimony of our distinguished panel of witnesses as they touch 
on new financial products that may be outside the reach of 
regulations or even regulators' traditional surveillance tools.
    For example, we will hear that while money has historically 
been transmitted using remittance services and funnel accounts, 
the use of prepaid cards and cryptocurrencies creates an 
unforeseen challenge for financial regulators. It is not just 
Congress who needs to learn more about these issues. While law 
enforcement agencies are on the frontlines doing excellent work 
in this area, it is a massive undertaking. In enforcement, in 
briefings with committee staff, law enforcement has candidly 
admitted that they need to gather more information about these 
new trends, and in some cases have indicated they may lack 
existing authority to do so.
    It is vital that we learn more about these areas to craft 
solutions to address human trafficking exploitation of our 
financial systems that are not only effective but are also 
appropriately tailored.
    On a personal note, many of my colleagues here know that I 
have worked tirelessly to put an end to online sex trafficking. 
My bill, the Allow States and Victims to Fight Online Sex 
Trafficking Act, would clarify that websites like Backpage that 
advertise sex trafficking can be held accountable under Federal 
and State law. Although Backpage gets the majority of the 
headlines, you will hear today about many, many other sites 
that appear to follow the same business model.
    I look forward to hearing all of your testimony this 
afternoon, and I also look forward to working with my friends 
on the other side of the aisle to thoroughly investigate this 
bipartisan issue. With that, I yield back the balance of my 
time. I would now like to recognize the gentleman from Texas, 
Mr. Green, the Ranking Member, for 5 minutes.
    Mr. Green. Thank you, Madam Chair. I thank the witnesses 
for appearing and I am grateful to this effort that we are 
endeavoring to take up. It is bipartisan and it is an 
opportunity for us to demonstrate that, when it comes to the 
sins associated with sex trafficking, there is very little 
daylight in between us, that we plan to work together for the 
betterment of people who are victims.
    I would like to indicate that sex trafficking is a very 
polite term. It is a term that does not embrace all of what 
happens. It is a term that is used in polite society, but what 
it really means is kidnapping. The literal taking of children 
from their parents. Taking them across State lines, across 
international boundaries.
    It is a term that would in some circles be called sexual 
assault, rape, and that can too often lead to the taking of 
life. Many victims of sex trafficking end up with their lives 
being lost. This hearing is absolutely timely in the sense that 
Dr. King reminds us that the time is always ripe, R-I-P-E, to 
do that which is right.
    We are doing that which is right today. In so doing, I 
think that we should let the persons who are victims know that 
they are not alone, that we have not only the Congress of the 
United States very much interested in what is going on, but 
also I would like to just mention that in my city, the city of 
Houston, the mayor has a letter that I will ask we receive into 
the record by unanimous consent.
    Our mayor is focusing on raising awareness, focusing on 
coordinating services to engage in direct outreach, focusing on 
becoming a national model. Also, we have PG, Project Girls. 
This is an institution, an organization, if you will, that is 
made up of survivors who are actually helping others to 
survive. Another letter for the record.
    Another letter would include the Children at Risk. This is 
a program that started in 2014 and they have the effort on to 
combat sex trafficking by focusing on the demand for commercial 
sex. Finally, I would mention The Landing, another entity that 
will focus on not only eliminating but preventing sex 
trafficking.
    Chairwoman Wagner. Without objection.
    Mr. Green. Thank you, Madam Chair. This sex trafficking is 
metamorphosing in the sense that the means, the methodology by 
which compensation is being received is changing. It is 
changing from what we might consider a traditional means of 
making payment, credit cards or cash.
    Credit cards in the sense that you can buy the prepaid 
cards more appropriately stated. It is moving from these means 
that we have some degree of knowledge as to how we can manage 
and trace to the cyber area into what we--one company is known 
to have the label bitcoin.
    We are looking at the cryptocurrency, and this is much 
harder to trace, much harder to understand how the movements 
are taking place. People have the ability in cryptocurrency of 
transferring money from one to the next without the trail that 
we are customarily looking for. We have to change our strategy. 
We have to metamorphose along with those who are performing 
these dastardly deeds.
    It is important for us as we do this to make sure that we 
include those persons who have been made victims. It is 
important to hear from people who can give us firsthand 
information and a firsthand understanding of how all of this 
transpires. I appreciate all of the professionals who are here 
and I look forward to hearing from all of you, especially one 
person today who is going to be able to share information based 
upon experience.
    Not an experience that is pleasant, not an experience that 
we celebrate, but an experience that can be beneficial to those 
of us who desire to legislate in an effective way so as to not 
only reduce sex trafficking, but to eliminate it. It ought to 
be wiped off the face of the earth. I pledge to work with the 
Chairwoman and all others of goodwill to see that it is done. I 
yield back.
    Chairwoman Wagner. Gentleman yields back. I thank the 
Ranking Member for his opening statement. I would now like to 
recognize the gentlelady from New York, Ms. Tenney, for 1 
minute for an opening statement.
    Ms. Tenney. Thank you, Chairwoman Wagner. Human trafficking 
is a modern day form of slavery that affects millions of people 
around the world each year. The victims of human trafficking 
are forced to engage in commercial sex or labor by traffickers 
who hold them often through threats of violence and other 
hostile means.
    According to UNICEF, there are nearly 21 million human 
trafficking victims worldwide, 55 percent of whom are women and 
girls. It is tragic to know that this atrocious crime against 
humanity is actually happening here in the U.S.
    As a multibillion dollar industry, traffickers will employ 
extreme measures to exploit the most vulnerable in our 
societies for profit. It is important that we study the new 
trends and the methodologies used by human traffickers in the 
financial systems so that we can develop effective methods to 
combat this terrible scourge on humanity.
    As a member of the New York State Assembly, I championed a 
number of issues to provide protections for victims of human 
trafficking. I was an original co-sponsor of the Trafficking 
Victims Protection and Justice Act, a bipartisan measure that 
was put in place while I was a member of the State Assembly.
    I am also glad to sponsor and I am proud to sponsor a 
number of other human trafficking initiatives that are 
currently introduced or will be introduced in the House. I just 
want to thank the Chairwoman for having this very important 
hearing on something that many Americans don't realize is 
happening right here.
    I want to thank the panel for being here today for this 
very important hearing on a really important topic. I just want 
to say thanks for your expertise and for enlightening us on 
this issue, this very important issue that many Americans don't 
realize is happening right here. Thanks so much and I yield 
back.
    Chairwoman Wagner. Gentlelady yields back. Indeed, modern-
day sex slavery is hiding in plain sight. I now am also pleased 
to recognize the gentlelady from New York once again, Ms. 
Tenney, to introduce today's first witness.
    Ms. Tenney. Thank you, Chairman Wagner. It is my honor 
today to introduce New York District Attorney, the Honorable 
Cyrus Vance, Jr. Though District Attorney Vance has many, I 
would like to highlight many, many achievements, especially I 
would like to highlight today that he has recovered nearly $12 
billion in the course of settlements with nine banks that 
violated U.S. sanctions and expanding the human trafficking 
program into the human trafficking response unit.
    As an attorney and a fellow New Yorker, I appreciate the 
time that you have put into your job to fulfill your duties and 
to serve the great State of New York. We are honored and 
looking forward to your testimony. Thank you so much for being 
here with us today.
    Chairwoman Wagner. I thank Ms. Tenney for her introduction 
of our first witness, who I have had the great pleasure of 
interacting with at the Manhattan District Attorney's Office 
with his fantastic staff that has been instrumental in helping 
us as we move forward in some of the legislation that we are 
pursuing in this committee and beyond.
    I would now like to introduce our next witness, Dr. Louise 
Shelley. Dr. Louise Shelley is the Founder and Director of the 
Terrorism Transnational Crime and Corruption Center at George 
Mason University. Dr. Shelley is a leading expert on the 
relationship among terrorism, organized crime and corruption, 
as well as human trafficking.
    She received her undergraduate degree from Cornell 
University and Masters in Criminology from the University of 
Pennsylvania. The Chair now recognizes the gentleman from 
Texas, the Ranking Member, Mr. Green, to introduce our next 
witness.
    Mr. Green. Thank you, Madam Chair. Madam Chair, I have the 
honor of introducing Ms. Tina Frundt. She is a leading figure 
in the crusade to help children sexually exploited for 
commercial purposes. Ms. Frundt is a survivor of domestic 
trafficking and dedicates her life to helping women and 
children heal from domestic sex trafficking and commercial sex 
exploitation.
    She also trains law enforcement and other nonprofit groups 
to help and provide resources to victims. She is a member of 
the Washington, D.C. Anti-Trafficking Taskforce and the Prince 
George's County Human Trafficking Taskforce.
    In 2010, she was awarded the Frederick Douglas Award. The 
award is given to an individual who has survived slavery and is 
using their life and freedom to help others. In December 2015, 
Tina was named to the United States Advisory Council on Human 
Trafficking by President Barack Obama.
    Chairwoman Wagner. I thank the Ranking Member. It is now my 
pleasure to introduce our final witness, Mr. Bassem Banafa. Mr. 
Bassem Banafa is a forensic accountant who provides consulting 
services and expert witness testimony on civil and criminal 
matters nationwide.
    Of note, Mr. Banafa has assisted attorneys and 
investigators in complex cases involving human trafficking, 
drug trafficking, money laundering, cyber crime, large-scale 
fraud, and organized crime. Mr. Banafa received his BSC in 
Accounting from Santa Clara University.
    Without objection, the witnesses' written statements, will 
be made part of the record and recorded after and following 
their remarks. I welcome all of you. Once the witnesses have 
finished presenting their testimony, each member of the 
subcommittee will have 5 minutes within which to ask questions.
    On your table, there are 3 lights. Green means go, yellow 
means you have 1 minute left, and red means your time is up. 
With that, again, welcome to all of you and I would like to ask 
District Attorney Vance to be recognized for 5 minutes.

               STATEMENT OF HON. CYRUS VANCE, JR.

    Mr. Vance. Thank you and good afternoon, Representative 
Wagner and Ranking Member Green. I am very honored to be asked 
to speak before the committee. Thank you, Representative 
Tenney, for your kind introduction and for the service that you 
provided as a State legislator and now at the Federal level. I 
am joined today by my colleague and friend, Carolina 
Holderness, who runs our sex trafficking unit at the Manhattan 
DA's Office.
    My written testimony details steps that our office is 
taking to address the increasingly complex world of human 
trafficking as well as the roadblocks that we face in our 
investigations. Some of the key challenges we face are those 
that have already been mentioned in the opening statements. 
They relate to obtaining financial data in an increasingly 
intricate global economy. Now, we are working closely with 
banks and financial institutions and money service providers to 
identify trafficking victims and activity and these 
partnerships have had tremendous impact on our work.
    For example, we have seen traffickers use social media to 
recruit young teenagers from rural areas all over the country. 
To bring these children to Manhattan, the traffickers wire 
money to purchase bus tickets. Money remittance services such 
as Western Union have worked with us to place alerts on sex 
traffickers so that we can trace where the money is being sent 
and intercept it before a child is victimized. Companies like 
Western Union, PayPal, and Venmo have been hugely helpful to 
our investigative efforts.
    However, traffickers are now turning to alternative methods 
of payment that were alluded to earlier, that allow them to 
remain anonymous, such as prepaid gift cards and 
cryptocurrencies. Individuals are using these prepaid gift 
cards to register trafficking websites, obtain cryptocurrency, 
and purchase sex. In one case from my office, someone used a 
Visa Vanilla Gift Card to anonymously register an escort 
website on GoDaddy. We are also seeing cryptocurrencies being 
used by traffickers to purchase advertisements and by sex 
buyers to purchase premium memberships on review board 
websites.
    This trend is driven by the fact that mainstream credit 
card companies are refusing to do business with sites such as 
Backpage. Before the rise of cryptocurrencies, many of these 
sites had been relegated to using other money processors that 
charge steep fees. Now, some members of the cryptocurrency 
community are specifically catering to traffickers who post 
advertisements on Backpage and other sites. Paxful, which is a 
peer-to-peer marketplace where users can exchange gift cards 
for bitcoin, explicitly publishes YouTube videos laying out 
step-by-step instructions for turning these cards into 
cryptocurrencies to pay for Backpage ads.
    I understand that the recent explosion in the use of 
cryptocurrencies is a complicated issue. I really understand 
that and it is a complicated problem that you are going to sort 
through. But I hope that your efforts will continue to be 
forceful, and we look forward as law enforcement to 
collaborating with you in your examination of potential 
legislative and regulatory solutions.
    Obtaining financial data on financial transactions can be 
challenging also because of our country's lax incorporation 
laws, which make it easy for traffickers and other criminals to 
hide behind anonymous shell companies. In many of our 
investigations, we find evidence of illicit activity but we 
don't know who is behind the activity because the criminal is 
using layers of shell companies to hide his or her identity.
    There is a bill currently pending in Congress that 
addresses this issue, the Corporate Transparency Act, which 
would require companies to disclose their true beneficial 
owners so that individuals running human trafficking rings 
cannot hide behind shell companies. On behalf of the Manhattan 
DA's Office and I believe speaking for law enforcement 
generally, we urge the Congress to pass this act.
    Finally, I would like to acknowledge one of the other 
challenges that we have faced in our investigations and that is 
the rise of the use of encryption, particularly on smartphone 
devices. I know this is a politically charged issue, but I 
really want to tell you that since 2014 when Apple and Google 
moved to what is called default device encryption to the extent 
that, for example, Apple can no longer open its devices in 
order to comply with search warrants, this has confronted law 
enforcement with a real challenge. Everyone in this room 
probably uses their cell phone for every purpose in their life 
now. The same goes for criminals. They have moved off paper and 
they are conducting their businesses on the Internet online and 
using their mobile devices.
    The inability, on behalf of law enforcement, to access the 
content of those machines is affecting our ability to bring 
cases in sex trafficking and a whole range of other crimes. I 
know as you look forward to your task, we look forward and 
stand ready to help in any way we can, Chairwoman.
    [The prepared statement of Mr. Vance can be found on page 
46 of the appendix.]
    Chairwoman Wagner. I thank the District Attorney Cy Vance 
for your testimony and we have had lengthy conversations here 
about encryption and it is something that we certainly will be 
looking into in the future. I thank you for your testimony. I 
would now like to ask Dr. Shelley to please be recognized for 5 
minutes to give her testimony. Dr. Shelley.

                   STATEMENT OF LOUISE SHELLEY

    Dr. Shelley. Thank you, Madam Chair, Ranking Member Green, 
and members of the subcommittee for this opportunity to 
testify.
    It is a great honor, I think you have taken on an 
absolutely core means to address human trafficking, because 
human trafficking leaves important financial traces that we are 
not using well enough in our pursuit of this egregious crime.
    Like the other speakers, I have identified the movement of 
human trafficking online into less visible locales, but I think 
it is also important to note that human trafficking is 
increasingly converging with the opioid epidemic. Victims are 
being trapped by opioids and people who are using opioids are 
becoming victims of human trafficking.
    Therefore, as we develop measures to help locate human 
trafficking, we may also be making an enormous impact on the 
opioid epidemic. One of the things that I have found in my 
research that follows what was going on several years ago is 
that we are not doing enough of what I would call creative data 
mining of the financial records of banking institutions.
    I was very fortunate to speak to some bankers who are at 
the absolute forefront of this, who are what I would call 
alumni of JP Morgan's initial program that very cleverly found 
human trafficking in a way that does not harm the victims and 
is not as sensitive to some of the problems that Mr. Vance just 
identified.
    What this requires is a proactive way of mining the 
financial data of banking institutions. That is, combining 
investigative techniques, patterns of human trafficking that 
are constantly changing but can be learned from law enforcement 
and translating them into algorithms that can be then used to 
mine data.
    When this is best done, one can be changing your success in 
finding human trafficking from a 15 percent rate if you are 
just reporting suspicious financial transactions through SARs 
(suspicious activity reports) to as high as an 85 percent rate 
if you are using and combining the best data analytics and the 
patterns gained from social science.
    Key to this is public-private partnerships which are 
already existing and they need expansion just as was laid out 
by the first witness, who explained the absolute need for this. 
But at the moment, we have too much pressure being placed on 
the banking community to do reactive ways of finding human 
trafficking through traces of what might be a suspicious 
transaction, as opposed to the more creative methods of going 
through huge bodies of data and actually finding the needle in 
the haystack.
    This is being done now by some of the most creative bankers 
during the Super Bowl and I can't say too much publicly but it 
is very, very promising in looking for these traces when the 
ads for human trafficking increase, as I put in my testimony, 4 
to 5 times at the time that you have a Super Bowl.
    Nowhere in the banking community did I find the use of 
text-based analysis, which is a very, very profitable tool to 
analyze large amounts of data. If this were combined with the 
type of numerical data analysis that is now being used by some 
of the most proactive banks, we could be making much more 
headway in this area.
    We need to be as flexible and innovative in using new 
techniques of data analysis to address this issue as the human 
traffickers are using in going online. Therefore, I think that 
we need to be focusing on this as legislation 2219 talks about, 
identifying the best practices in the field. This includes data 
analysis, beneficial ownership, related to real estate as I 
talk about in a prominent case from North Carolina, from 
Congressman Pittenger's district, and also ways of implementing 
and encouraging exchanges of best practices.
    There is much that can be done and there are many 
sophisticated people with technological expertise that can help 
us. Therefore, I think we need to be restructuring how we 
praise and reward the banking community for being innovative 
and not tying them down to measures that are not the most 
effective in addressing the problem. Thank you.
    [The prepared statement of Ms. Shelley can be found on page 
39 of the appendix.]
    Chairwoman Wagner. Thank you, Dr. Shelley, for your 
testimony. It is now my pleasure to recognize Ms. Frundt, who 
is here on behalf of our victim's community and is the founder 
of Courtney's House. It has been wonderful to collaborate with 
you over time. You are recognized, Ms. Frundt, for 5 minutes 
for your opening statement.

                    STATEMENT OF TINA FRUNDT

    Ms. Frundt. Thank you. Madam Chair, Ranking Member Green, 
thank you so much for that wonderful introduction, and members 
of the subcommittee, thank you for the opportunity to testify 
before the Subcommittee on Oversight and Investigations.
    My name is Tina Frundt and I am Executive Director and 
Founder of Courtney's House. Courtney's House is based in 
Washington, D.C. and provides direct services to both males and 
females of sex trafficking between the ages of 11 and 21. Our 
current caseload is more like 13 to 19 years old.
    I currently sit on the White House Advisory Council on 
Human Trafficking and serve as Co-chair of the Rule of Law 
Committee, which is responsible for developing a uniform set of 
investigative protocols for all Federal law enforcement 
agencies. I have extensive experience providing expert witness 
testimony in Federal and local trials on human trafficking. 
Since Courtney's House's inception, we have helped over a 
thousand survivors exit their trafficking situation. I have 
previously spoken at many hearings in respect to sex 
trafficking. I am also a survivor of child sex trafficking, so 
my perspective today is going to be a lot different.
    Sex trafficking is something that I not only experienced 
firsthand for over 20 years but also in my daily work as a 
service provider for sex trafficked youth. The population I 
serve can speak directly about what goes on today on the 
financial side of sex trafficking along effects of not just 
emotional and physical trauma but along financial insecurity.
    I really want to focus on that I have a very young 
population, and I say that because of having a very young 
population, trafficking trends change all the time. You have to 
be updated on the changes all the time on the ground. My 
testimony will not only touch on what happened to me but the 
importance of increasing the effectiveness of the financial 
industry.
    Passage of H.R. 2219 to increase the role of the financial 
industry in combating human trafficking will provide an 
important step in the right direction, but we have to make sure 
that we cover everything.
    When I was 13-1/2 I met a man that was 15 years older than 
me. During my trafficking situation, I survived manipulation, 
torture, and mental abuse, but due to time, I will focus my 
remarks today on the longstanding financial insecurity and 
financial abuse I experienced firsthand of my trafficking 
experience.
    Most of my population once again is under the age of 19 and 
were sold on Instagram, Facebook, Snapchat, and Tagged, 
especially our boys who are sold on Tagged.
    There are a few ways survivors are recruited on social 
media; through Facebook Live and Instagram Live, where they are 
actually sold and auctioned on Live. Facebook and Instagram 
Live now are used heavily to sell survivors because you can 
screen, you can allow for your friend and private groups, and 
then you can use some of these methods to boost your population 
and pay to boost it throughout Facebook.
    Additionally pimps and traffickers use this boost to 
feature and promote private groups of pimps and traffickers to 
recruit young girls and to sell them on Live. Survivors who are 
referred to Courtney's House who are minors are sold on social 
media. Traffickers are moving away from Backpage and recruiting 
children and youth on social media.
    Since January 2017, 100 percent of all of our survivors 
were sold on the following mechanisms I said which was 
Facebook, Instagram, Tagged. This is very important and I keep 
saying how old they were. It is important that they were 14 to 
15 because they can't own things in their names yet unless 
someone steals all their information to do so.
    Street, online, hotel, and motels, it is a popular 
misconception that trafficking does not occur on the street. If 
this were true traffickers would miss a population of buyers 
who still prefer to buy sex on the street. I don't think we 
actually think of traffickers as business people because that 
is not even a good business model. You will sell your product 
everywhere because you would maneuver that everywhere to hide 
your money.
    I think that it is hard for people to see and understand 
street-based sex trafficking. Most traffickers do not have one 
person they sell. Like any good business person, pimps, and 
traffickers focus on many avenues to increase their weekly 
profits; children and youth are placed on the street but they 
are also placed at the same time in hotels, motels, strip 
clubs, online, and private homes. Children and youth are forced 
on the street throughout the time.
    Survivors who are 13 and 15 are advertised online. Now you 
may ask me how they are advertised in these open markets. When 
you are a trafficker and you are a U.S. citizen you do hand 
over all of your bank information. Yes, children who may get a 
monthly income every month and it is put on a bank card. When 
you are with a trafficker, you actually have to hand over your 
own banking information as well, your Social Security Card, 
your SSI, your Government benefits, your food stamps, all gets 
handed over to them.
    That brings this back to me, and why this is an important 
issue to survivors. When I was 14, I had property in my name. I 
had cars in my name. Of course I didn't find this out until my 
late 20's when I was homeless and trying to apply for programs 
and transitional housing programs and rental assistance 
programs, which I was not able to get because my credit was 
bad, so I got approved but I can't get assistance because the 
realtors and the renters won't accept me because my credit was 
bad and stolen.
    There were no laws for protecting victims' credit, there 
still really isn't. It took me many years to prove my identity, 
many years to ask about laws that weren't even on the book yet 
to clear anything. It took me 5 to 8 years to clear up 
anything. You had to prove the trafficking situation. I had to 
help write policy to change their perspective.
    I have actually never spoken out about my financial issues 
before today due to my sex trafficking situation. Working 
through your trauma is one thing, but repairing your credit 
fraud and your financial footprint will take a lifetime. It 
follows you throughout your time. It stops you and prevents you 
from moving on.
    Thank you all so much for your time. I would be ready and 
willing to answer any questions.
    [The prepared statement of Ms. Frundt can be found on page 
36 of the appendix.]
    Chairwoman Wagner. Thank you, Ms. Frundt, very much for 
your testimony.
    We have looked at Vacator legislation and laws but I guess 
I have never really taken into account the difficulties with 
credit scores and such too. I appreciate your testimony very, 
very much.
    Mr. Banafa, you are now recognized for 5 minutes.

                   STATEMENT OF BASSEM BANAFA

    Mr. Banafa. Madam Chair, Ranking Member Green, and members 
of this subcommittee thank you for the opportunity to testify 
before the Subcommittee on Oversight and Investigations today.
    My name is Bassem Banafa. I am a Financial Forensics 
consultant at my own firm Bassem Banafa, LLC and for PlainSite, 
an organization that works on legal transparency.
    I was previously a forensic accountant with the Contra 
Costa County District Attorney's Office in California where I 
personally reviewed and analyzed tens of millions of dollars in 
transactions conducted by human trafficking organizations. I 
also worked at Wells Fargo in the Financial Institution 
Investigations Group, which was tasked with investigating other 
financial institutions that may have been compromised by 
criminal organizations that were processing transactions 
through Wells Fargo.
    Prior to that I worked at TM Financial Forensics, LLC, 
another consulting firm where I worked on disputes that 
involved tens of billions of dollars in losses between 
financial institutions that had processed transactions for each 
other and failed to conduct sufficient due diligence to prevent 
those same losses.
    I was asked to provide the Committee with an assessment as 
to how financial institutions monitor, review, and verify 
depository relationships with payment processors. There are 
five ways that a financial institution can engage a payment 
processor. One, engaging a third party to process automated 
clearing house transactions which are bank to bank 
transactions, and bank account to bank account transactions. 
Two, engaging a third party to process payment card 
transactions such as Visa and Mastercard. Three, engaging a 
money services business to process transactions that we are all 
familiar with: Wire transfers or credit card transfers. Four, 
engaging a money services business to process alternative 
payment methods such as cryptocurrency or gift card 
transactions. Five, engaging another financial institution that 
may itself process those transactions for payment processors.
    To support my analysis of financial institutions overseeing 
these payment processors, I looked at four websites and their 
payment methods. These four websites are associated with the 
commercial sex trade and these are the payment methods 
currently available to users wishing to engage with those 
websites.
    One in particular that I will go over is the Erotic Review, 
which allows users to provide extensive, detailed reviews of 
their participation in commercial sex. This includes 
measurements of the victim that they purchased, the ambiance of 
the situation where they engaged in the act, and a detailed 
description of the acts that were purchased.
    This site allows users to purchase access to these reviews 
through U.S. financial institutions. The cryptocurrency 
transactions it accepts are processed through a U.S.-based 
cryptocurrency payment processor. The credit card transactions 
that it accepts are processed through U.S.-based credit card 
processing companies. The beneficial owners of this website are 
largely located in the United States. The customers of this 
website are located in the United States. How is this company 
able--the Erotic Review able to accept transactions this way 
with the current backlash against human trafficking?
    In my written testimony I went over the various methods 
that a financial institution may use to review the activity at 
a payment processor and why this may not have succeeded in 
preventing the Erotic Review from accessing U.S. financial 
markets. In particular there is a problem with the way that we 
engage financial institutions and ask them to prevent money 
laundering.
    The Erotic Review uses a Cyprus-based shell company to 
accept these transactions. Because this company is based in 
Cyprus, through a chain of shell companies that are also based 
in Cyprus, that are in Anguilla, that are in Amsterdam, the 
Erotic Review is able to evade many anti-money laundering 
structures. Because there are limited incentives for financial 
institutions to invest more in detecting this type of evasion, 
the Erotic Review is able to accept these payments.
    I concluded my written testimony by asking members of the 
subcommittee to consider that law enforcement needs to be able 
to pursue these transactions wherever they occur, in the United 
States or abroad. The way to do it is to understand how these 
financial institutions work. As they have grown to accept 
cryptocurrency and other payments their internal structures 
have become increasingly complex and it has become difficult to 
identify what it is that a law enforcement officer needs to 
subpoena or get a search warrant for. That is where I believe 
we need to enhance our knowledge and ability, when pursuing 
that information within financial institutions.
    Thank you.
    [The prepared statement of Mr. Banafa can be found on page 
28 of the appendix.]
    Chairwoman Wagner. Thank you, Mr. Banafa, very much for 
your testimony.
    I will inform members of the committee that votes have been 
called. I am going to attempt to get through my questions here 
first. We will absolutely convene again, if they have called 
them early, I thought they were going to be closer to 3:15 to 
3:30, but I am going to try to get through my questions and we 
will come back immediately following votes and resume the 
hearing.
    With that, District Attorney Vance, I am going to start 
with you. In your testimony you noted that more and more banks 
and credit card companies refuse to do business with those who 
facilitate sex trafficking and as a result have turned to 
prepaid gift cards.
    Can you go into greater detail on how the shift from more, 
what I call, traditional methods such as wire transfers or 
credit cards has changed the playing field for your office and 
how difficult is it to find out where the money is coming from 
and how difficult does it make it to prosecute?
    Mr. Vance. Madam Chair, we had the opportunity to talk 
briefly before the hearing today and I described to you the 
difference between anonymity or my sense of the difference 
between anonymity and privacy.
    All of us obviously have a constitutional right to privacy. 
I think we are all jealously guarding that. I am not sure the 
Constitution has given us the right to be anonymous in defense 
of investigations by law enforcement. To answer your question, 
gift cards that can be purchased with cash and that have no way 
to identify who is the purchaser are then being accepted by 
sites such as Backpage in order to advertise prostitution and 
sex trafficking. I think that is a typical example of how the 
use of technology and anonymity provided by cards makes it very 
difficult for anyone to be able to identify who is actually the 
person who purchased the site, the advertisement on the site.
    Chairwoman Wagner. Thank you, Mr. Banafa.
    I appreciated your testimony about Erotic Review. It's 
abhorrent, absolutely abhorrent. I had the displeasure of 
viewing it for the first time in the Manhattan DA's office and 
some of their reviews. It is the first time I had been exposed 
to this review site.
    But following up on the question to the District Attorney 
we know that major credit card companies won't process payments 
on sites like Backpage, but they will accept these 
cryptocurrencies. In fact they often promote this by moving to 
cryptocurrencies, credit card companies are now just one step 
removed.
    Since I can still use my credit card to purchase a currency 
like bitcoin for instance, how can major payment processors 
like Visa, American Express, and others monitor transactions 
and help ensure their services aren't being used to facilitate 
trafficking?
    Mr. Banafa. Thank you for the question, Madam Chair.
    This issue, a similar issue, came up several years ago with 
payment processing for adult websites in general. Visa and 
Mastercard responded to this issue by requiring direct 
registration of every merchant regardless of the payment 
processor that was being used. I would imagine that requiring 
registration for bitcoin processors and enforcing registration 
at the merchant level for merchants that accept bitcoin through 
processors that are one, two, three levels removed would 
provide the information necessary to ensure that this doesn't 
occur.
    Chairwoman Wagner. Thank you.
    Ms. Frundt, first, it is an honor to have you here today. 
You are a tremendous spokeswoman for victims of trafficking, 
and I am so grateful for our partnership.
    I know you touched on this in your testimony, but can you 
elaborate here briefly on the importance of having financial 
institutions work with victims of trafficking to, as you called 
it, ``fill in the gaps''?
    Ms. Frundt. Yes, one of the things that I think that is a 
gap is not having survivors at the table with financial 
institutions. It changes so rapidly that you need to know on 
the ground what is also happening, but also importantly is, 
when I was trying to clear my credit for years, 5 to 8 years, 
there was nothing on the bank websites to tell me anything on 
how to file this, because it doesn't trickle down to training.
    The person on the 1-800 number answering, you have to go 
through a lot and I stopped for a year because I was 
frustrated. It needs to be accessible to survivors. Even in an 
investigation process, when your case is being investigated, 
ask us more financial issues, like we will give you this, we 
will tell you how it happened but people aren't asking the 
right questions to get the right answers, that is at the 10th 
step instead of at the very beginning.
    Chairwoman Wagner. Thank you very much.
    Dr. Shelley, the same question for you, what does your 
research say about the importance of working with victims to 
stay ahead of the criminal enterprises that are always changing 
their behaviors as we are hearing on adapting, what best 
practices have you identified, ma'am?
    Dr. Shelley. I think that it is important not only to have 
the victims but unfortunately within trafficking organizations 
their bookkeepers and financial participants and they also need 
to be interviewed, because they can help you find the traces 
and the patterns that you are looking for.
    For example, 8 years ago one of the key ways of finding 
human trafficking was charging to nail salons. That is not a 
key element of how you find human trafficking today. There are 
many more elements that are being used in terms of payment 
systems that trafficking victims use for their transport, to be 
not too specific.
    But by sitting down with people who are constantly in the 
process of running a business or being exploited, they know how 
these patterns work. That is what you need because all these 
patterns leave traces of financial data, and they can help 
construct the algorithms that then find the human trafficking 
organizations without putting the victims in jeopardy.
    Chairwoman Wagner. Thank you, Dr. Shelley.
    Sadly, we are going to have to hang on here, and I ask your 
indulgence while we run to vote. We have two votes, folks. We 
will reconvene right afterwards.
    The Subcommittee on Oversight and Investigations now stands 
in recess.
    [Recess.]
    Chairwoman Wagner. The Subcommittee on Oversight and 
Investigations will come to order.
    The Chair now recognizes the gentlelady from Wisconsin, Ms. 
Gwen Moore for 5 minutes.
    Ms. Moore. Thank you, Madam Chair. Let me thank the 
witnesses for coming. I especially want to thank Ms. Frundt for 
coming. I have had an opportunity to hear about her wonderful 
program and the numbers of survivors that she has supported, 
and do appreciate the work.
    I guess I want to start with the financial expert--my 
bifocals don't work as well, so excuse me if I mess your name 
up, Mr. Banafa. I guess I am concerned or I have a question 
about how discerning or discovering these financial crimes is 
being implemented through the President's council and 
engagement with the financial services community and with 
victims and survivors. Can you give us a little bit of the 
elements and the methodology that you guys are using to 
coordinate all those things?
    An earlier example, and I don't want to consume all my 
time, was where you said, nail salons. People weren't getting 
manicures at 2 o'clock in the morning. You were able to figure 
that out. How with the President setting up this technology 
agency, how are you better able to find these algorithms, and a 
little bit more explicit?
    Mr. Banafa. Thank you very much for the question. Many of 
these financial institutions are coming together with social 
service organizations to identify red flags. Although, as Ms. 
Frundt has explained, these are changing constantly; my hope is 
that the result of those collaborations is that we will be able 
to keep up with those changes.
    Some examples of the red flags that we have identified 
include the identification of types of shell companies, such as 
those in high-risk jurisdictions including Cyprus, that many of 
these websites are using. I think three of the four websites I 
identified in my written testimony were using shell companies 
in Cyprus. Credit card companies in the United States are 
allowing the use of Cypriot shell companies to accept these 
transactions.
    Ms. Moore. Ms. Frundt, I guess I would--you have day-to-day 
contact with these young people and thank you again for this 
work. I am so happy that you are on the frontlines of 
identifying this as a human crisis issue rather than just a law 
enforcement issue. How do you develop the trust and so forth to 
get victims to break through the brainwash that they have 
experienced? What do you do? What protocols do you do to try to 
reach out to these folks?
    Ms. Frundt. Thank you very much for that question. I am 
going to walk you through a day-to-day to get a better 
understanding of Courtney's House.
    I did something that was very difficult in the very 
beginning. I grew up in Chicago, Illinois and I grew up in 
foster care, and I grew up in an environment where I didn't 
trust police at all. Actually almost didn't take a job at the 
very beginning with the Polaris Project, because they asked me 
to help start a human trafficking task force. I am saying that 
because I only saw a negative way.
    One of the things I realized in time is that I had to 
partner with the police, U.S. attorneys, and also have them 
come to our fun events, have them be able to come to our drop-
in center and be a part of it, have them dress down, they love 
that. I promise you.
    We serve food every day. We come and they are not allowed 
to ask them questions, and they can ask them questions. That is 
when they get ready. First we were just a very honest 
organization where they see us and we know what is happening on 
the ground. It is not like I am just a little old lady because 
I am sometimes. It is not like that, it is actually where kids 
are--and these are kids. These are 13- or 14-year-olds.
    I think that people don't understand that if you work 
serving youth, you need to be a youth-led organization, meaning 
that we are on social media for our kids. We have Snapchat. We 
actually face-time our drop-in center and have other survivors 
tell them about the program who are their age. That is really 
important because that is how we do it. Then we have them come 
in.
    Although I work with the missing and absconders unit inside 
of foster care, our kids help find other missing kids, and when 
the police come and we have friends, they are friends with 
them, they actually get to tell them, can I tell them, can you 
call detective so and so and ask them to come, like that never 
happens.
    Ms. Moore. Right, right.
    Ms. Frundt. We are creating a community and that is why 
they open up because we are creating a positive community.
    Ms. Moore. Thank you so much.
    Thank you, Madam Chair, for your indulgence.
    Chairwoman Wagner. My pleasure. The gentlelady yields back.
    The Chair now recognizes the gentleman from Colorado, the 
Vice Chair of the Oversight Investigation Committee my friend, 
Mr. Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Chairwoman. I appreciate you holding 
this very important hearing.
    Something impacting every State and my home State of 
Colorado, 2016 more than a thousand cases of human trafficking 
were reported with our two major interstates that are running 
through our State and the cartel activity unfortunately that we 
are starting to see as well. We are seeing this impact a lot of 
our communities and obviously devastating an awful lot of 
lives.
    We do have in my home area, the West Slope of Colorado, 
have a group called the West Slope Against Trafficking. It is 
an anti-trafficking organization trying to be able to create 
awareness in Mesa County. The head of that organization 
recently said, one of the most important resources that we 
should develop is a community awareness on what it looks like, 
what to do when you encounter it, and the knowledge of the 
crime is the best defense against it.
    Dr. Shelley, expanding that sentiment onto the financial 
services industry, is it difficult for financial institutions 
to use analytical tools to be able to spot the patterns and 
data that may indicate suspicious or illegal behaviors with 
regards to trafficking?
    Dr. Shelley. I don't think it is difficult if you have the 
right skill set on board. I think too many banks have just 
former criminal investigators and you need people with data 
analytics skills. You need people with social science skills, 
people who can help write algorithms. But fortunately today, 
there are many people who would be happy to work with the 
banking community and the bankers, some of them who are 
proactive, are seeking help outside, not only with the law 
enforcement community, but with anybody that can help them.
    That is not the problem. The problem is having enough 
allocated resources within a bank. A bank that needs to deal 
with its SARs is just drowning. The SARs do not allow them 
enough time, with 10 or 20 people, to do the proactive and 
creative thinking that this data mining requires. That is the 
major challenge.
    Mr. Tipton. Expanding on that, it caught my attention in 
your testimony, you brought up the opioid crisis. We just had 
two roundtables in my district this last week, the impact, the 
expansion of that. Are those some of the tells that we might be 
looking for to start to be able to be more proactive?
    Dr. Shelley. Absolutely. In fact, while you were on recess, 
I was doing some wonderful networking here with people who are 
looking at just this issue with the intersection of opioids and 
human trafficking and there are cases that are being developed. 
There is evidence the two overlap and yet we tend to stovepipe 
and look at opioids or we look at human trafficking.
    But often, the human traffickers are less careful than the 
drug traffickers and it can help give us an enormous window 
into the way the opioids traffickers are operating.
    Mr. Tipton. I appreciate that and I think that you speak to 
something very important as has Ms. Frundt in terms of trying 
to be able to be proactive as opposed to being reactive.
    Unfortunately, Ms. Frundt, you had to live this.
    Ms. Frundt. Yes.
    Mr. Tipton. Are there some areas that you could maybe point 
to that when we are looking at--it all revolves ultimately 
around finances as you had indicated. Where are some of the 
areas where you see us in the financial service sector to be 
able to be more proactive as opposed to just being reactive?
    Ms. Frundt. Once again with the training to financial 
institutions, having survivors on the board and helping them 
with the training. But there is a gap, I think, that we are 
missing that we see a lot that is not online and one of them is 
popup shops. We love that concept of popup shops.
    But what we are seeing online is that these tattoo shops 
and barber shops are doing popup shops with stripping and young 
girls there and selling them online on Instagram or Facebook. 
There is a whole development where other business owners are 
actually cutting through that where I am saying, ``I am coming 
to you'' and I am saying, ``Here, if you pay me $500, I get a 
cut of $3,000 off of that, I will let you rent my space off of 
a building that I own.''
    We really have to reach to financial institutions on 
community levels, so they can be aware of this and what is 
happening and they are advertising this online of where the 
locations are throughout the different cities. That connecting 
is important.
    Mr. Tipton. Good. I am about out of time, but I would like 
to ask the District Attorney. Is that something that you are 
looking at in terms of prosecution as well?
    Mr. Vance. Yes, sir. We actually--I think public-private 
collaboration in this area is particularly important and we 
work with the Thomson Reuters Foundation which itself brought a 
group of large banks together in a working group so that we 
could provide to them the typologies of crimes that we are 
seeing so that the banks would understand what records they 
might have that might be relevant to building and proving 
cases.
    We know here how the crime is being committed. Once the 
banks understand what records are involved and what to look 
for, they have the data. I think because of the work of 
committees like this, and it is so important, when people 
understand the scope of the problem and actually understand it 
is out there because we don't have a huge awareness of this 
issue in the United States. Once businesses understand the 
scope of the problem, they want to jump on. They are good 
corporate citizens and they think this is--among the worst 
things that could be happening in America is to tolerate sex 
trafficking or human trafficking.
    Mr. Tipton. Thanks, sir.
    I apologize for asking a question with 8 seconds to go, 
Chairwoman. Thanks for your indulgence.
    Chairwoman Wagner. No. No. No. It is quite all right. We 
want to make sure everybody can be heard.
    The gentleman's time has expired. The Chair now recognizes 
the gentlelady from Ohio, my good friend and a true leader and 
champion in the area of human trafficking and specifically 
partnering with me on online sex trafficking issues, the 
gentlelady from Ohio, Mrs. Joyce Beatty, for 5 minutes.
    Mrs. Beatty. Thank you to Madam Chairwoman and also to our 
Ranking Member.
    First, let me say to the panel, thank you. You have been 
more than our traditional panel because you have lived the 
issue. You are in the field of investment, knowledge, and 
research in it. I want to applaud you for being here and being 
so personal and detailed.
    Certainly, to our Chair and my good friend and colleague, 
thank you for your leadership.
    So often, you as panelists or as guests or America, you do 
not hear us talking about positive relationships and what we do 
together on both sides of the aisle. I can tell you, when it 
comes to whether it is online human trafficking, whether it is 
educating our court system, educating our police department, 
telling people if you see something, say something, I can tell 
you Congresswoman Ann Wagner is at the top of the list of being 
the biggest advocate and she chose not to do it alone. She 
reached over as a Republican and with me being a Democrat, we 
have been in this fight and we will continue to be in that 
fight together.
    I wanted to take that moment of personal privilege to say 
that.
    Chairwoman Wagner. Thank you.
    Mrs. Beatty. But, I have a whole series of questions like 
my colleagues, but I am going to be a little spontaneous here 
because of the dialog. We are hearing a lot about 
cryptocurrency. We are hearing a lot about how it affects our 
credit. If you have been trafficked and oftentimes they are 
using your Social Security number, your name, your life, and 
you get no value out of it other than bad credit when you 
become of age or when you are no longer in that situation.
    Most of you have mentioned that in your testimony, but I 
think what struck me, Tina--I am sorry to call you Tina, but 
that is how I know you. Let me just interject how much I love 
following you. I was with you 2 years ago when you came with 
Congresswoman Wagner and Ted Poe and Caroline and spoke and it 
was so powerful. I followed you around the country.
    But, I am going to take my time to ask all of you to 
respond to something that she said. What we are doing here is 
great. We find out about something and we try to write 
legislation to curb it or to discontinue it. That 
cryptocurrency is the new way, but you say we should be more 
proactive than reactive. What is it each of you would say to us 
because we write the laws and we know it. We have heard you 
testify on it. We know it is a problem.
    We know what is happening. We know that there are places 
like FinCEN that is working on trying to stop this. Tell me 
what we could do to be more proactive, because I think that is 
the answer. It is too late when it is over or you are harmed. 
What should we do?
    Ms. Frundt, do you want to start first?
    Ms. Frundt. There are a few things on fixing the gaps to 
me. I am going to keep saying it. There is a huge gap with 
financial institutions and knowing what is happening on the 
ground. Once again, putting survivors in part of that training 
in connecting will really help, because it changes so much and 
you have to be on the changes that happen continuously, too.
    The other piece to me that is really important is to how 
financial institutions notify. When I was going through this 
issue of--and cleaning my credit, no one answered that number. 
Remember that back of your card number, that 1-800 number that 
you have to call?
    Mrs. Beatty. Yes.
    Ms. Frundt. They do not know anything about trafficking and 
they have no idea and they send you around with all this 
information that you have to prove. There is nothing on 
anyone's website that I could look up that anyone knew anything 
about. It was so frustrating that I did stop.
    You get so mad. You stop for a couple of years. It is hard 
when you talk to lawyers and things weren't introduced yet. It 
makes this so frustrating. These things are not accessible to 
survivors. It is not even explaining anything. That is an easy 
fix to me, of making something accessible and saying that you 
do something.
    Also, if police would tell people more about that, you will 
get way more information, why do kids tell us things and adults 
tell us stuff because I tell them, ``This is to help you clean 
because you cannot get your own apartment. You are not going to 
be able to get anything. What if victim assistance gave you 
money, your landlord will not rent to you.'' You phrase it in 
ways on how it will affect them.
    We will give you all the information in the world. We will 
give it. Just phrase it and start asking us more questions 
about it. And then, also, explain cash apps, Google Wallet, 
like Google needs to be trained, right? These cash apps that we 
use, Square reader. All of these people need to be trained and 
understand, because those are the mechanisms that they are 
using.
    Mrs. Beatty. OK. Thank you.
    Chairwoman Wagner. I am going to allow a little indulgence 
here. Would anybody else like to respond?
    Mrs. Beatty. Thank you.
    Chairwoman Wagner. Dr. Shelley?
    Dr. Shelley. I think the question that you are asking about 
what to do with cryptocurrency is very much related to the bill 
that you referred to that you have been teaming up with 
Representative Wagner, which is the idea that we need to be 
regulating our new innovations in the technological space much 
more, where they have had a free pass while we are regulating 
utilities. We are regulating banks, but in the online space, 
these groups are going--like bitcoin, like other 
cryptocurrencies--without regulation.
    Unfortunately, as we have been discussing over and over 
again, the criminals who are committing all these exploitative 
acts are extremely innovative and adaptive. Without any 
measures to try and control these new payment systems, they are 
at the forefront of its use, and therefore I think you need to 
think about cryptocurrencies the way you are thinking about 
your other piece of legislation on how we deal with online 
marketplaces.
    Mrs. Beatty. Thank you.
    Chairwoman Wagner. District Attorney Vance, do you have 
anything to add?
    Mr. Vance. I couldn't agree more with what the doctor said. 
I support her suggestions. Britain now has a Cabinet-level 
position to deal with human slavery and that says something 
about the commitment of that government and country to the 
issue. With that kind of leadership, it provides the 
opportunity for the country to be inspired, to heed the call 
for both good corporate citizenship and personal involvement.
    Now, I am not saying that we should have a cabinet member 
on that, but what I am saying is that given the scope of the 
problem as the Chairwoman has indicated in the international 
scope of it, I think America should be viewed as stepping up to 
take a leadership role in the international fight and that 
could take many forms, but we should be at the front of the 
line on this, as this committee has been, and that will have 
impact.
    Mrs. Beatty. Thank you.
    Mr. Banafa?
    Mr. Banafa. Yes. I think that is an excellent question and 
I think it is important to understand that cryptocurrency is 
worthless without actual currency. The relationships between 
these cryptocurrency processors and financial institutions is 
an area that we need more understanding of and if necessary, 
regulation.
    BitPay, one of the largest cryptocurrency processors in the 
United States, had said publicly that they have relationships 
with multiple financial institutions, including institutions in 
the U.S., but that those institutions did not wish to be 
disclosed publicly. I think that is very telling regarding the 
role of cryptocurrency and their financial institutions in the 
United States.
    Chairwoman Wagner. Thank you.
    The gentlelady's time is expired and I appreciate the 
committee's indulgence in letting the witnesses expound on a 
very important question.
    It is now my pleasure for the Chair to recognize the 
gentleman from Georgia, Mr. Loudermilk, for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chair, and I really 
appreciate the hearing here and all of our witnesses. A very 
difficult subject from not only the emotional aspect and the 
stories we hear, but the heavy lift that we have to do to deal 
with this horrendous crime.
    Dr. Shelley, we are currently updating the Bank Security 
Act and we have had several hearings in some other 
subcommittees and full committees on this, the updates, which 
it needs to be updated to actually incorporate new technologies 
and the new financial systems that we deal with today. But it 
is interesting in one of the hearings recently, many of the 
bankers, they came in and testified, it was that they 
understand the importance of the SARs that they fill out, the 
Suspicious Activity Reports.
    But, some of the criticism is there is often suspicious 
activity that does not just fit right within the scope of the 
law that they would want to be able to report, and the other 
part which I found intriguing was quite often, they never get 
feedback from law enforcement on the reports that they submit 
that would help them to actually identify more trends of what 
are the activities that are being done for nefarious causes 
versus like when I had a business, every month, because I had a 
payroll processor, I transferred $10,000, $20,000 a couple of 
times a month, wired it out. Of course, that would generate a 
SAR, but that was nothing suspicious. Do you have any thoughts 
on that as we look at updating the BSA?
    Dr. Shelley. Absolutely. You are getting to the heart of 
the problem, is that from a banking point of view there is 
rarely that one piece of information that you report in the 
SARs that reveals human trafficking. Just as in the report that 
I did for the World Economic Forum which summarized the data 
mining that J.P. Morgan was successfully doing and finding 
cases, there were about eight elements that were needed to 
locate a human trafficking or a suspected human trafficking 
organization.
    There may not be so many elements now, but it is not one or 
two things. Therefore the way the SARs is designed doesn't get 
at the problem and Government regulators are drowning in SARs.
    Mr. Loudermilk. Right.
    Dr. Shelley. We need to use the greatest advances that we 
are having now in looking at the enormous data that we are 
collecting. We need social science. We need victims. We need 
people who have insights into how trafficking operates and then 
transfer this into data analytics. It is not something that 
bankers can do themselves, and that is the wonderful thing of 
the shared wisdom on this panel. This diversity is really going 
to help you get to this, the complexity and the diverse 
elements you need to move into a new way of thinking about 
analyzing and finding risks in banking.
    Mr. Loudermilk. Thank you. Another issue that we have 
discussed now in two Financial Services Subcommittee hearings 
today, we are going to be discussing more often is this aspect 
of cryptocurrency. Now, with the strength of the cryptocurrency 
becomes the weakness for us for things like this, and it is the 
anonymity of it which actually makes it a prime solution for 
cyber security risk that we have. Many businesses are looking 
at this block chain technology because it is superior in 
decentralizing, but it does create a problem in the law 
enforcement realm.
    I think I am going to see more use of prepaid credit cards, 
the more that we have cyber breaches, Government is probably 
the biggest culprit of cyber breaches after today, I personally 
know more and more people, when they get a paycheck, they buy 
prepaid credit cards to do all their transactions with. They 
are not doing anything illegal and nefarious, but because the 
fear of their money being at risk through cyber crime.
    I think that it is not the cryptocurrency itself, it is the 
block chain technology that I think is going to be a reality we 
have to deal with. I think we are going to have to not try to 
regulate it through legacy standards, but come up with new 
regulations.
    Mr. Vance, with this, what are the tools that law 
enforcement is using now specifically with cryptocurrency? I 
know we were able to take down Silk Road. I do not know if we 
actually were able to get the perpetrators, but we were able to 
take the site down with Silk Road. What are the tools that we 
can use today going after the cryptocurrency users?
    Mr. Vance. I think first and foremost is to find a human to 
be able to explain what is happening, that is old fashioned 
inside witness who may be seeking leniency. Some of our old 
techniques are just as important as they always were in terms 
of understanding how money is moving and then how we can 
interrupt that.
    But clearly, generally speaking, Representative, we have 
become much more sophisticated in our ability to use technology 
to identify, to start to paint the picture just by dots filling 
in. I think our technology is much stronger in terms of 
identifying where the issues are and what investigative leads 
we could follow. But at the end of the day, separating intel 
from prosecution, I do think cases are going to be made where 
people are going to actually have to get up there and testify 
and that is going to still be the most important evidence we 
have, I believe.
    Mr. Loudermilk. Thank you.
    Chairwoman Wagner. The gentleman's time is expired.
    The Chair now recognizes our Ranking Member, Mr. Al Green, 
for 5 minutes.
    Mr. Green. Thank you, Madam Chair.
    Again, I thank the witnesses for appearing. I would like to 
deal with something that may appear to be a bit mundane, but I 
think is absolutely necessary to confront. It is indicated in 
the intelligence that has been reported to me that in 2014, the 
Urban Institute estimated that the underground sex economy 
ranged from $39.9 million in one American city, we need not 
name the city, to $290 million in another American city.
    This is a lot of money. We also know that this is a cash-
intensive business which means that there are some persons 
masquerading with a facade of legitimacy that are walking into 
banks, leaving cash-intensive businesses and they are making 
deposits. We know that laundromats are cash-intensive. We know 
that night clubs, businesses where you bring cash at the door 
and you don't get a receipt. We understand that restaurants, 
car washes, cash-intensive businesses.
    I do not know if there is a profile on the typical 
perpetrator, but we have to at some point expose the fact that 
a lot of people who are masquerading as legitimate business 
people are fronts for the bagging of the money and placing it 
into commerce. We have to go after them, but we have to expose 
them and the world needs to know who they are, because if we 
don't, in a sense, we are allowing them to continue to have 
this veneer of legitimacy.
    Mr. District Attorney, to what extent have you been able to 
infiltrate these professionals in some circumstances who are 
masquerading as legitimate business people?
    Mr. Vance. We opened up our Human Trafficking Response Unit 
in 2012. We have had dozens of indictments and obviously 
investigations, scores of investigations. Congressman, I am not 
aware of us having found a business such as you described and 
identifying that as the source for money laundering of a human 
trafficking operation.
    But what we do see and the way we approach these 
investigations now are not as sex crimes investigations but 
business crimes investigations, because this is a business. 
What has changed from I think our prosecutor's perspective is 
we are using all the traditional investigative techniques that 
go along with business investigations: Search warrants, 
subpoenas, identifying assets, seizing assets, this is how we 
get at the traffickers.
    Mr. Green. May I just intercede and suggest this, what 
about--you talked about human capital in terms of ascertaining 
your intelligence, acquiring your empirical evidence. What 
about surveillance? In my city, there is a business that never 
has cars at that location, but we know that it stays in 
business. It deals in the purveying of paraphernalia for sex. 
Never any cars there, but they stay in business. Wouldn't that 
kind of surveillance at least give some indication that there 
may be something untoward occurring there?
    Mr. Vance. Absolutely. The investigations begin on tips and 
observations and then, as you well know, they then require 
manpower to staff those investigations and stay the course.
    You are right, absolutely, and I am sure the law 
enforcement and I am sure that our office from time-to-time 
just misses the thing that is right in front of our eyes 
because we are not paying close enough attention. It happens. 
But I think our goal is obviously, with experience and with 
help from a variety of experts, to really try to minimize those 
misses to the smallest degree we can.
    Mr. Green. I assume that all of the persons associated with 
banking, the persons associated with the various departments of 
the constabulary, all of them are honorable people and that 
they all mean well, but I do believe as has been indicated, 
that the people who are engaged with the people who purvey, 
they have something to share with us that may be a bit more 
nuanced and mundane but that can make a difference. I do 
appreciate what you said.
    Now, I have gone 12 seconds over. I am going to ask for 
unanimous consent to have one more minute, Madam Chair.
    Chairwoman Wagner. Without objection.
    Mr. Green. Thank you.
    I want to now go back to the person who has had an 
experience that I don't celebrate in any way, but I am 
appreciative that you are amenable to sharing your thoughts 
with us. I am just curious. As it relates to you, what was it 
that gave you the courage to step away? You mentioned a little 
bit earlier and I do not mean to give you so little time, but I 
am interested in knowing what broke the bond?
    Ms. Frundt. Thank you for asking me that question. I need 
people to understand that you get tired of being sick and tired 
and that really means that, I didn't have services or anything 
like that. You get tired of repeating your same mistakes over 
and over and over and over and there is no outcome. It is a 
scary thing to go out on your own to do something different 
every day that you didn't do different before to get a 
different outcome.
    For me, I got tired of being sick and tired. Thankfully, 
drugs has never been my issue because I am sure if I was 
addicted or did any drugs in life, that would have been an 
issue for me. The issue for me was convincing myself I was 
smart, convincing myself that I can pull my negative into 
positive and see in the world that everybody else thinks like 
this is the world, me, this is a new world for me. I hadn't 
lived in a world where people did not do criminal activity. 
Like, I did not know how to survive in this world.
    To be honest with you, it is more of that, of getting sick 
and tired and not knowing how to fix things and trying your 
best to get a different outcome than what you had before.
    Mr. Green. Thank you.
    Madam Chair, I ask unanimous consent that you would be 
allowed to consume as much time as you may for questioning.
    Chairwoman Wagner. Thank you. Hearing no objection, I have 
one other area and I thank the Ranking Member for his support 
and for his indulgence here.
    One thing that we have not explored too much, I want to get 
a little bit of your background and information on is dealing 
with these gift cards. We hear a lot about how money is loaded 
on to these gift cards and they are used for payments for 
services on websites, review sites, whatever it may be. Ms. 
Frundt talked about even Facebook and Snapchat, and Instagram, 
and other avenues.
    Mr. Banafa, I understand that there are now websites that 
cater to people interested in trading or even selling gift 
cards for cash. How do these websites ensure that payments for 
these gift cards are not facilitating child sex trafficking?
    Mr. Banafa. Thank you very much for that question, Madam 
Chair. To clarify, and I didn't go into this in my written 
testimony, there are two types of gift cards that we have 
discussed today, open loop gift cards and closed loop gift 
cards. Open loop gift cards include prepaid Visa and Mastercard 
cards. Those are cards that allow you to reload with cash and 
are not limited to a single merchant.
    There are also gift cards that are limited to a single 
store, such as Starbucks gift cards. Those cards are now being 
used on websites to purchase access to The Erotic Review, and 
purchase access to other merchants that wish for their 
customers to remain anonymous.
    Chairwoman Wagner. City Guide, Eros, any of these websites 
out there, correct?
    Mr. Banafa. Yes.
    Chairwoman Wagner. Alright.
    District Attorney Vance, any thoughts regarding the gift 
cards and how they are really facilitating child sex 
trafficking, also knowing that they are so easily transportable 
and that there are few ways that law enforcement can perhaps 
track their movement?
    Mr. Vance. Madam Chair, I do not have anything smarter to 
say than the last witness. This is where we are. We want 
anonymity. Now, we have it, but there is a cost. Ultimately, it 
then comes back to you, the legislators, to figure out where do 
you draw the bounds. It is just like encryption.
    We have ceded in the Internet world authority to the 
players of the world without regulating it, and we are now 
coming to a time in our culture where we will see the 
consequences of that total un-regulation is behavior that is 
occurring right in front of us that we know is awful, but we 
don't yet know or have the willingness to step in and say, ``We 
are going to impose some laws here.''
    At the end of the day, I think that is what we are going to 
have to do if you want to actually take on the kinds of funding 
questions that you are exploring, and a lot of folks won't be 
happy if you do that. But a lot of us will say, ``This is--we 
need to strike a balance not to have an all or nothing approach 
to these issues.''
    Chairwoman Wagner. As I think you so well stated at the 
beginning of your testimony, certainly, we are all entitled to 
privacy, but not necessarily anonymity, especially as it 
pertains to criminal activity, especially when it pertains to 
the exploitation and victimization and rape of tens of 
thousands of women and children and young men and boys not just 
across our country, but globally. It is absolutely abhorrent 
and it is something that when I served as a United States 
Ambassador in Western Europe, I was introduced to this horrific 
crime coming frankly from Eastern Europe.
    Never did I realize until I returned home and began to 
delve in, that again it was happening right here in the United 
States of America. It is incumbent upon the Congresswomen Moore 
and Beatty and certainly our Ranking Member here, Congressman 
Green, and myself and others to stand up for those who have no 
voice, to give you the tools and the resources so that you can 
put these criminals behind bars. We have no business in the 
United States of America to turn a blind eye to modern-day sex 
slavery which is exactly what this is.
    It is our duty to protect our victims and give them the 
support and the resources and the tools to rehabilitate their 
lives. I appreciate all of your testimony. I appreciate some of 
the new areas that now we are going to delve into here, 
especially as it comes to some of the online social media sites 
that, we talked about the websites, but we haven't necessarily 
gone into all the Facebook, and the Instagram, the Snapchat and 
things of this nature, it is an evolving and fast moving 
technological world that we are in.
    Mr. Banafa, what you had to say about Cyprus and some of 
the domestic platforms, financial systems that are really 
enabling the money to be had, popup shops, the credit score 
issues. I look at vacator laws that we fight for to allow a 
judge to be able to say, ``If you were accused of a crime, by 
virtue of the fact that you were a human trafficking victim, 
perhaps that crime should have the opportunity to be vacated so 
that you can get an apartment, find a job, go back to 
schools.'' But the credit score issue is something that I do 
not think we have looked at either.
    I want to thank you all. I know that the Ranking Member has 
something he would like to add to the record.
    Mr. Green. Yes. Thank you, Madam Chair.
    I have a letter from Ms. Christina Bain. Ms. Bain is an 
expert on human trafficking and has focused on addressing the 
role of business and entrepreneurship in the fight against such 
trafficking. With unanimous consent, I would be pleased to 
place this in the record.
    Chairwoman Wagner. Without objection.
    I would like to thank our witnesses again for their 
testimony today, but more importantly for being on the front 
lines. We look forward to working with you as this committee 
and this Congress delves into these issues that are cutting-
edge, things that are evolving quickly. We want to call upon 
your expertise, your advice, and your support and thank you for 
the work that you are doing to fight this horrific crime.
    Without objection, all members will have 5 legislative days 
within which to submit additional written questions to the 
Chair which will be forwarded to the witnesses. I ask our 
witnesses to please respond as promptly as they are able.
    I thank you again for your testimony here today, and most 
of all for what you are doing to fight the scourge of human 
trafficking here in the United States and frankly across the 
world.
    This hearing is now adjourned.
    [Whereupon, at 4:07 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                            January 30, 2018
                            
                            
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