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Project Protect has helped financial institutions catch millions of dollars generated from sexual exploitation

Timea Nagy didn’t care if they never invited her back. They needed to hear the hard truth.

Ms. Nagy, an advocate for survivors of sex trafficking, was pacing the stage at a financial-crimes conference in Toronto, back in November of 2015. As she peered into the audience, a crowd of 300 bankers and government suits, she clutched a microphone and swallowed her nerves.

She told those well-heeled strangers how she was forced into sexual slavery as a newcomer to Canada, and how easy it is for traffickers to get away with their crimes because banks, financial regulators and police were failing to follow the dirty money. She also spoke of her advocacy work in the United States, and how American banks were increasingly flagging suspicious account activity to bust pimps. Then she took a leap.

“I was like ‘OK, now you heard what the problem is. Now you know what the States is doing. … What are we gonna do about this in Canada?’” Ms. Nagy recounted in an interview with The Globe and Mail. “I put my hand up and said ‘Who is with me?!’”

She was bursting with exuberance. But the conference delegates clammed up.

“I’m standing there. The heat of the moment is gone,” Ms. Nagy explained. “So, I put my hand down slowly. … I’m like, ‘Wow, I’m just a loser right now.’”

That’s when a man with an imposing presence, who was sitting near the front of the room, stood up. Peter Warrack, the then-director of anti-money laundering investigations at the Bank of Montreal, cleared his throat.

“My boss doesn’t know this yet,” he began. “But I promise you – I promise you – that we will do something. We will get behind you.”

That pledge marked the dawn of Project Protect, the first-ever public-private partnership to combat human trafficking for sexual exploitation. A collaboration between the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), banks and law enforcement agencies, Project Protect targets the money laundering associated with sex trafficking.

Since its launch in early 2016, Project Protect has helped financial institutions catch many millions of dollars in illicit money as it entered the banking system.

It has also increased lenders’ reporting of suspicious transactions to FinTRAC, enabling the anti-money laundering watchdog to improve the financial intelligence it provides to police across the country for their sex-trafficking investigations.

Although notoriously difficult to prosecute, the buying and selling of human beings, especially vulnerable women and girls, is one of the world’s fastest-growing crimes. It is second only to drug trafficking in terms of profitability.

It is estimated that human trafficking – which includes sexual exploitation and forced labour – generates more than US$150-billion in illicit profits for criminals globally each year, according to the International Labour Organization.

But this is a conservative estimate, according to economic-crime experts, who say that human trafficking is under-reported and is often perpetrated by organized-crime groups that have little fear of getting caught.

“There’s criminals in our society. They’re there to make a profit. And if you look at the level of prosecution, then it’s pretty safe,” said Sarah Paquet, director and chief executive officer of FinTRAC. “That’s a low risk, high rewards.”

Canada is a “source, destination and transit country” for human trafficking, according to Public Safety Canada. Not only do most victims know their traffickers, nearly a quarter of them are age 17 and younger. Most are Canadian.

For all its successes, Project Protect is only making a dent in a growing problem because blind spots persist in Canada’s financial intelligence regime.

But with Canada’s national strategy to combat human trafficking set to expire next year and the federal government reviewing our anti-money laundering laws, Ms. Nagy and other experts are offering new solutions that would make it easier to use illicit money trails to track traffickers and save more lives.

“Human trafficking is all about money,” Ms. Nagy said. “If you follow the money, you will find out where the money comes from, and you find out where the money goes.”

Lured on a lie

Ms. Nagy’s path to becoming an advocate for survivors of sex trafficking began on April 27, 1998, the day she left Hungary for Canada.

She had secured a contract job in Toronto prior to her departure. At only 20 years old, she desperately needed an infusion of income after racking up crushing debts in Budapest. Her video production company in her home country had foundered because of unpaid taxes. She and her brother also owed overdue rent for their apartment. With the bills piling up and the risk of eviction looming, the siblings had scrambled to find new work.

That’s when Ms. Nagy responded to a newspaper advertisement seeking young women who would be willing to relocate to Canada for temporary jobs. “No English necessary,” it said.

The employment possibilities, she was later told, included child care, housekeeping or even go-go dancing. She agreed to work as a babysitter after learning there were Hungarian families in Toronto that needed nannies.

All Ms. Nagy had to do, according to the female recruiter in Budapest, was sign a contract, provide her personal details along with emergency contact information for her family. The agency would buy her a plane ticket and take care of the rest.

It seemed like the ideal solution to her worsening cash crunch. So, Ms. Nagy seized the opportunity and arrived in Toronto some two weeks later.

Three men, two Hungarians and a Canadian, picked her up at Pearson Airport. To her surprise, she recognized one of them – a former police officer who once worked with her mother in Budapest.

But instead of placing her with a family, they took her to a motel and then a strip club. Ms. Nagy had been lured to Canada on a lie. There was no babysitting job.

She learned the trio were actually transnational sex traffickers. Their headhunter in Budapest, a girlfriend of one of the men, had tricked Ms. Nagy into signing a contract – written in English, a language she didn’t know – that stated that she would work as an exotic dancer. Back then, Canada was readily offering temporary work permits to foreigners seeking jobs as strippers.

Sex traffickers are using shell companies to launder illicit profits in Canada

Ms. Nagy didn’t want to work as an exotic dancer. But when she protested, her traffickers told her she had no choice. After all, she already owed them thousands of dollars for her airfare, accommodation and other costs.

To further instill fear, they threatened the lives of her mother and brother back home, and told her that disobedient women were beaten with a baseball bat before their disfigured bodies were dumped in Lake Ontario.

Ultimately, Ms. Nagy was forced to work in the sex industry for three months, enduring soul-crushing assaults and abuse.

Her traffickers forced her to work up to 20 hours a day. She was sleep-deprived and starved. They controlled her every move and seized her earnings – until Ms. Nagy outmanoeuvred them, that is.

She learned a few English words and befriended three Canadians, all strip club employees. They helped her escape after learning she was enslaved.

“My life is divided in two: before I was trafficked and after,” Ms. Nagy writes in her book, Out of the Shadows: A Memoir. “No one gets over such traumatic experiences but there are ways to integrate them into your identity and make them meaningful, to fully come to terms with their impact. That has been my healing journey.”

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Timea Nagy in September, 2009, the year she founded a non-profit organization called Walk With Me, which operated Canada’s first safe house for trafficked survivors.Sheryl Nadler/The Globe and Mail

Seeking justice for survivors

Ms. Nagy eventually sought help from police. One of her traffickers faced sexual-assault charges, but was later acquitted by an Ontario court. The issue of human trafficking was never addressed because the case was heard before Canada had specific laws outlawing those crimes.

There would be no meting out of justice for her horrific ordeal. Such a stark realization would permanently topple most people, but not Ms. Nagy.

It took her years, but she pulled herself up and out of the darkness and found new purpose by helping other victims. In 2009, she founded a non-profit organization called Walk With Me that operated Canada’s first safe house for trafficked survivors.

“I had no idea what I was doing, but all I knew is that the victims needed a place to stay and there was no such a place,” Ms. Nagy said in our interview.

She also began working with law enforcement, starting the country’s first 24/7 mobile victim-care line.

Police would get in touch after receiving calls about victims in crisis. Some were women who had escaped their captors by running out of buildings or those who were injured and in hospital but too scared to speak to the officers. Others were women who had nowhere to go after giving their statements to the cops.

“Police would call us at 3 a.m. We would drive anywhere – around three to four hours around Ontario,” she explained.

On occasion, those nocturnal excursions involved police raids. During that front-line work, she would link up with detectives and rescue victims from places such as motels. Survivors would be moved to the safe house and later to other accommodations.

Those humanitarian services weren’t being funded by any government at that time, so Ms. Nagy used her own money and sought donors. All told, her organization helped more than 300 survivors and their families over six years.

Ms. Nagy also began training police officers across the country on how to investigate human-trafficking cases, offering insights gleaned from her own experience.

She ended up amassing more than 2,700 police contacts on her personal cellphone. Those officers would regularly request her help with forging trust with survivors and overcoming roadblocks in their investigations.

“In the middle of these conversations, I’d realize that the [officer] in Windsor is looking for the same guy who’s been wanted by Kingston,” Ms. Nagy said. “Soon enough, I became the 411 for police officers who have been working on human trafficking.”

Co-ordinating those communications became unwieldly, so she started a BlackBerry Messenger group for law enforcement. Its roster of participants initially comprised investigators from across Ontario, but later expanded to include those with RCMP and the FBI as well.

Between 2009 and 2015, Ms. Nagy’s non-profit assisted police with more than 500 human-trafficking investigations across Canada. But in case after case, save for 18 convictions, traffickers beat the charges because of a lack of evidence.

“When you go to court, everything is based on the victim,” Ms. Nagy explained. “The victim needs to be a perfect victim. … And if you can tear down the victim and rip her apart, there is no way to prove human trafficking. It’s ‘he said, she said.’”

One of those failed cases involved a “gorilla trafficker,” a term that refers to a pimp who uses violence to control victims. Despite two years of effort, that case fell apart in 2015. That devastating outcome weighed heavily on the victim, and it haunted Ms. Nagy.

“He put his victim on fire, he tortured her in many different ways. He was set free due to a lack of evidence,” Ms. Nagy said.

Her non-profit, meanwhile, encountered financial setbacks. In 2015, Walk With Me closed its doors after running out of money.

But later that year, Ms. Nagy received an invitation to speak at a software company called Verafin Inc. The St. John’s-based company, which is now a subsidiary of Nasdaq, Inc., uses technology to detect fraud, money laundering and other financial crimes.

“So, I go to Newfoundland and I go to this, like, big Google-like company,” she said. “Everything is shiny. They have perfect coffee machines and perfect little chairs, nice view. Everybody looks like they’ve slept well. You know, I haven’t slept in six years.”

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Ms. Nagy speaking at Verafin Inc., a St. John’s-based software company that uses technology to detect fraud, money laundering and other financial crimes.Handout

Following Ms. Nagy’s presentation about trafficking case studies and possible solutions, an engineer sought her advice. At the time, Verafin was developing new tools for its U.S. banking clients to detect human trafficking by identifying suspicious account activity.

Traffickers typically commandeer a victim’s bank accounts, credit cards and identity documents, while also fraudulently applying for loans and government benefits in a survivor’s name. Doing so allows perpetrators to avoid detection, control victims, obscure the source of their funds and launder the proceeds of their crimes, experts say.

Verafin’s new tools were designed to identify transactions that bear the hallmarks of trafficking activity, such as multiple hotel and motel payments and late-night deposits or withdrawals at ATMs. The engineer asked Ms. Nagy to review some of the suspicious bank-account activity to help him better understand the financial patterns present in trafficking, and improve the software.

“That’s when the lightbulb went on and I said, ‘Oh, wait a minute! If we had this kind of information in some of the court cases – if the financials were available – then we could have proved through the financial footprint that she was working, she gave him all of her money,’” Ms. Nagy said.

Ms. Nagy knew all too well that traffickers prevent victims from spending money on themselves. Their bank accounts may receive frequent deposits, usually cash or e-mailed money transfers, but they are routinely drained by their pimps and demonstrate atypical spending patterns. For instance, large sums could suddenly be spent on car rentals or at high-end jewellery stores and restaurants.

Verafin was so impressed with Ms. Nagy’s financial-crime expertise that its executives asked her to go on a three-year speaking tour of the United States to help educate banks about the illicit financial flows connected to human trafficking. She also spoke with the Financial Crimes Enforcement Network, or FinCEN, an arm of the U.S. Department of the Treasury.

Still, Ms. Nagy wondered why Canadian banks weren’t taking similar action on human trafficking. She set out to convince them, and their regulators, to be part of the solution.

“I started thinking ‘Well, it’s only five banks, not like 5,500 in the U.S., so it can’t be that difficult.’”

Project Protect is born

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Ms. Nagy's speech at the Association of Certified Anti-Money Laundering Specialists’ conference in 2015 set off a series of events that would result in the creation of Project Protect.Fred Lum/The Globe and Mail

Ms. Nagy was on her U.S. tour in 2015 when she was asked to speak at the Association of Certified Anti-Money Laundering Specialists’ conference in Toronto.

“The only crowd that’s scarier than bankers is the cops,” she said, recalling how she felt that day.

But she had to secure the banks’ involvement. After all, financial records could prove these crimes and secure convictions in court.

But, as Ms. Nagy took the stage, she became “very emotional” as her mind cast back to the failed gorilla-trafficker case. It was time to lay it on the line. “I was particularly spicy,” she said of her address.

Her blunt delivery is part of what moved BMO’s Mr. Warrack to break the silence that day and promise he’d get his boss to do something.

“It was her passion,” said Mr. Warrack, who is now chief compliance officer at cryptocurrency exchange Bitfinex. “How could you not help? She’s so driven.”

After Mr. Warrack vowed to take action, the man seated next to him, a representative of FinTRAC, said the regulator would also get on board. During the conference, Mr. Warrack received offers of help from the heads of the investigations departments of every major bank.

Mr. Warrack ended up handing Ms. Nagy his business card and jotted down her e-mail address. Within three days, he contacted her and invited her to attend a roundtable meeting at BMO’s headquarters in Toronto.

When Ms. Nagy arrived, seated around the table were anti-money laundering directors from major Canadian banks, FinTRAC, Toronto Police and the RCMP. They were all eager to learn more from her.

“I almost cried. I could not believe it,” Ms. Nagy said. “So, I gave a presentation about how I think we can use money trails to find sex trafficking.”

That meeting was in December of 2015. Soon after, Project Protect, as it came to be known, was up and running.

Following the money

Project Protect allows FinTRAC, banks and police to exchange general information about how sex traffickers wash their ill-gotten gains.

That dialogue has enabled the regulator to develop two operational alerts – the first in December of 2016 and the second in July of 2021 – that outline various red flags for the laundering of illicit proceeds from sexual exploitation.

Although a single indicator does not prove wrongdoing, multiple markers could point to a pattern of suspicious activity.

There are 58 indicators in all. Those warning signs include multiple phone numbers attempting to access a woman’s bank account, large payments to several telecom providers, frequent purchases of airline, train and bus tickets, and sizable cash advances made against a credit card.

Project Protect has also shed light on the various business models used by pimps. Sexual exploitation doesn’t just occur at hotels and motels, it also routinely takes place in residential properties or at storefront businesses, such as spas, illicit massage parlours and strip clubs.

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Sarah Paquet, director and CEO of FinTRAC, Canada's financial intelligence unit, in the Ottawa office in February 2023.Ashley Fraser/Globe and Mail

Moreover, FinTRAC has found that organized-crime groups often move trafficking victims to various locations across the country.

“Some rings will go to eight or 10 cities, and they are moving victims from one city to the other because that’s part of their modus operandi not to get caught,” said FinTRAC’s Ms. Paquet. “So, don’t think that if you’re not in Montreal, Toronto or Vancouver, you’re safe. This is absolutely not true. It’s happening in small cities.”

The favoured money-laundering methods of sex traffickers involve the use of casinos, online gambling, virtual currencies, prepaid credit cards, gift cards, investment accounts and shell companies, according to FinTRAC’s research. Traffickers are also known to use their victims to commit other crimes such as fraud and drug trafficking.

Prior to the creation of Project Protect, Canadian banks were sending FinTRAC a couple hundred suspicious transaction reports, or STRs, related to human trafficking each year. But following its launch, banks adjusted their algorithms and that annual volume increased to several thousand.

What’s more, with insights gathered from Project Protect, banks are including more pertinent details about the detected dubious transactions, thereby improving the quality of FinTRAC’s referrals to police.

In 2021-22, FinTRAC provided 332 disclosures of what it calls “actionable financial intelligence” to municipal, provincial and federal law enforcement agencies to support their human-trafficking investigations. (Each of those disclosures could include hundreds or thousands of STRs.)

More than 90 per cent of FinTRAC’s disclosures were provided pro-actively, meaning the individuals or networks were not known to police.

Those achievements have caught the attention of the international community. As a result, FinTRAC has shared information about Project Protect with more than a dozen countries – including Australia, Indonesia, Latvia, Peru and the United Kingdom – along with the United Nations and other international organizations fighting financial crime.

“Canada needs to be a leader because we have more means than many other countries,” said Ms. Paquet. “So, we need to not only do the best we can here to stop it, but also help other countries globally to fight it as well.”

Gaps at home

Although Project Protect is setting a global standard for public-private partnerships that target sexual exploitation, it is only scratching the surface of a growing problem here at home.

Human traffickers still operate with relative impunity on Canadian soil. It’s a reality that hasn’t escaped FinTRAC, which is determined to keep up the fight.

“Our mandate is to follow the money,” said Ms. Paquet. “So, if with our financial intelligence, we are able to speak for the victim [in court] that would be success to me.”

Trouble is, the criminal justice system is still failing survivors. Even when traffickers’ crimes are uncovered, only 42 per cent of police-reported incidents result in the laying or recommendation of charges, according to StatsCan.

Moreover, our country’s track record of successful prosecutions is spotty at best – even though court proceedings for human-trafficking cases take twice as long to complete than those for other crimes. Only 12 per cent of concluded cases resulted in a guilty verdict for a human-trafficking charge between 2010/2011 and 2020/2021, StatsCan added in its report.

Gaps in our financial-intelligence regime are partly to blame for that low conviction rate, experts say.

For her part, Ms. Nagy would like to see the federal privacy law amended to improve the quality of information sharing among banks, FinTRAC and police.

“If you could find a way to share information in Canada legally without breaking privacy laws, I think that would that would open the doors tremendously,” Ms. Nagy said.

The Personal Information Protection and Electronic Documents Act, or PIPEDA, restricts how businesses, including banks, collect and use personal information about their customers. Its safeguards are meant to protect consumers from unreasonable privacy intrusions but they also have the effect of limiting data sharing as part of public-private partnerships such as Project Protect.

Presently, FinTRAC, banks and police are only allowed to exchange information about typologies or generic details about the potential red flags for criminal activity under the auspices of Project Protect. They cannot share any specific information about individuals or entities as part of that collaboration.

PIPEDA’s protections also give suspected money launderers cover to hop from bank to bank without detection because financial institutions are prohibited from warning each other about suspicious activity by clients, experts say.

That means even if a bank gets rid of a problem customer, a practice known as “demarketing,” that individual can easily open an account at a rival lender.

Although PIPEDA, which is currently under review by Parliament, already allows information sharing in cases of fraud, there aren’t similar exemptions in place for money laundering, human trafficking or child exploitation.

Canada’s banking industry has long pushed for legislative change. Specifically, financial institutions are seeking a permanent “safe harbour provision” that shields them from legal liability if they participate in data-sharing partnerships to catch money launderers.

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In 2021 FinCEN issued new guidance to make it easier for U.S. banks to share customer information with each other to identify suspicious activity linked to money laundering or terrorist financing.Jeenah Moon/Reuters

U.S. banks have benefitted from such legal protections for 22 years. In fact, FinCEN issued new guidance in 2021 to make it easier for them to share customer information with each other to identify suspicious activity linked to money laundering or terrorist financing.

Ottawa, however, has yet to provide permanent safe harbour protections to Canadian banks.

If it does, that would certainly increase the effectiveness of Project Protect, said Stuart Davis, executive vice-president, financial-crimes risk management and group chief anti-money laundering officer at the Bank of Nova Scotia.

But Mr. Davis argues that other businesses, such as hotels, airlines, ride-share services and nail salons, must also do their part to combat this crime.

“It needs to be a societal moral compass,” Mr. Davis said, noting suspected cases can be reported to the Canadian Human Trafficking Hotline. “These are people being exploited. Let’s take action.”

FinTRAC also requires an expanded mandate and powers to combat money laundering, according to a 2018 report by the Standing Committee on Finance.

Although FinTRAC collects STRs from banks, its governing legislation prevents a two-way flow of information with them. That means FinTRAC has no ability to provide feedback or ask banks any follow-up questions about STRs. Nor is it allowed to request additional information from them about shady customers, prompting criticism that FinTRAC functions as a “black box,” the report said.

That same study also recommends the federal government replace FinTRAC’s current suspicious transaction reports with suspicious activity reports. Suspicious activity reports, which are used in the United States and Britain, provide broader accounts of suspected illegal activity by customers, ultimately offering more clues to police.

Law enforcement, meanwhile, needs to take full advantage of financial intelligence that’s presented to them by FinTRAC to locate all the proceeds of a perpetrator’s crimes, Mr. Warrack said.

“Police put together their case, charge the pimp with human trafficking et cetera, but they don’t have the resources to go back and look at how much the person has made,” Mr. Warrack said. “So, literally recover the money and then use those funds to help victims that have been rescued.”

Ottawa also has an opportunity to fight human trafficking through the forthcoming Canada Financial Crimes Agency, which was announced in 2022. The government, which is trying to quell criticism that Canada is an international haven for money laundering, is due to provide more details about its mandate and structure this fall.

“I welcome it with a caveat that another layer of bureaucracy is not gonna do much to help,” said Vanessa Iafolla, principal at Anti-Fraud Intelligence Consulting who focuses on money laundering and human trafficking. “We need investigators who are specialists.”

Moreover, fighting human trafficking isn’t just a federal problem. It requires a long-term and sustained effort by police across the country, she added.

“Victims who report crimes don’t report exclusively to the RCMP, they report to all kinds of police forces,” said Ms. Iafolla. “If you’re in Toronto and you’re in the queue and you don’t hear from the officer for a few days, that’s troubling to you as a victim. Because we know that the longer it goes on, the more difficult it becomes to figure out where the money has gone and who’s got it. The likelihood of recovery just drops off a cliff.”

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Ms. Nagy is also the founder and CEO of Timea’s Cause Inc., a social enterprise that works to end human trafficking and employs survivors.Fred Lum/the Globe and Mail

Still fighting for change

Ms. Nagy, now 45, never sought out to become an expert on human trafficking or anti-money laundering. Nevertheless, she’s now a global authority on those matters.

Equal parts sleuth, savant and saint, she has made it her mission to combat human trafficking in all its forms even though her own life remains in danger by speaking out.

She’s worked with organizations both domestically and abroad, and has been a speaker at round table discussions with heads of state, leaders and financial regulators. Her volunteer work has been recognized by former prime minister Stephen Harper and the late Queen Elizabeth.

Ms. Nagy is also an entrepreneur. As founder and CEO of Timea’s Cause Inc., a social enterprise that works to end human trafficking and employs survivors, she trains police, governments and big businesses on how to trace criminal proceeds to trap sex traffickers and rescue survivors.

Her corporate client roster includes some of the biggest names, including Facebook, Airbnb, Bank of America, American Express, Capital One, Scotiabank, BMO, Hyatt and Marriott.

Ms. Nagy has created systemic change in her adopted country, but she still believes more can be done to improve the way sex trafficking is combatted in Canada.

Her story proves that one persistent person can make a difference that saves countless lives. She’s been at it for 14 years already and will keep pushing for change for as long as it takes.

“It’s not that I wanted to do all these things,” she said. “We needed it.”

Who to call to report sex trafficking in Canada

  • If you spot someone in danger, call 911 or your local police.
  • If you are a survivor of human trafficking, or suspect that someone else might need assistance, call the Canadian Human Trafficking Hotline at 1-833-900-1010. It operates 24 hours a day, seven days a week.
  • Members of the public can anonymously report a case of human trafficking to the Crime Stoppers Association National Tipline at 1-800-222-TIPS(8477).
  • Canadians can also disclose their suspicions about money laundering to FinTRAC on its online portal.
  • Consult the Victim Services Directory to locate resources available to survivors across Canada.

More reading:

Sex traffickers are using shell companies to launder illicit profits in Canada

How Canada’s sex traffickers evade capture and isolate victims

Escaping sex trafficking often takes years, new research shows

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