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Your suspicious activity reports (SARs) are swimming in a sea of two billion SARs filed with FinCEN each year, so how do you get your investigations noticed? BSA analysts spend hours working on an investigation; thus you want to be sure to make the most significant impact for each suspicious activity case. At our recent BAM+ User Group conference, Terri Luttrell, CAMS-Audit discussed the best tactics to get your SAR noticed while ensuring that your regulators are happy. Here are seven tips to get eyes on your SAR:

  • Law enforcement is your primary SAR audience. While it is true that you are writing SARs for your auditors, regulators, and financial institution, your primary audience is law enforcement. They are the ones using the information in them to catch the bad actors and keep illicit funds out of your financial institution. The others are merely making sure they’re being correctly filed.
  • Get the reader’s attention early. Your first sentence must be captivating to keep the reader’s attention. Tell your story in plain English and be careful with acronyms and financial institution jargon. Spell it out for the law enforcement personnel reading it. If your case is one of especially nefarious activity, pick up the phone and call law enforcement. Build that partnership and let them know what you’ve found.
  • Be concise, thorough, and accurate. Leave out any unnecessary information and reread the narrative before filing. Delete any extra “fluff” that will hide the important case information and lose your reader’s interest. This is a detailed, factual document, not a creative writing essay.
  • Use keywords. Keywords not only make it easier for law enforcement to pull pertinent SARs, but it also satisfies FinCEN requests to add certain keywords in the narrative, such as “human trafficking,” “funneling,” “political corruption,” etc.
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  • Don’t be repetitive. Tell your story and always include the who, what, when, where, how, and why you believe it is suspicious. If the information in a SAR box does not explain your story further, such as a subject’s driver’s license number, don’t repeat it.
  • Use the most recent regulatory SAR guidance. To satisfy regulatory requirements, where conflicting guidance is concerned, use the most recent guidance from both FinCEN and the FFIEC.
    • FinCEN – use SAR form instructions and the 2012 SAR form Q & A (FIN-2012-G002)
    • FFIEC – 2014 Exam Manual, Appendix: L, SAR Quality Guidance
  • Always follow your regulator’s instructions. While your regulator may want something in the SAR narrative that you believe will not assist law enforcement, pick your battles. A strong relationship and open communication with your regulator is healthy and critical for a strong BSA Program. Therefore, SAR narrative writing is probably not a battle you need to win.
SAR filing is one of the most important aspects of a BSA professional’s job duties. If you follow these tips, law enforcement will more likely read your SARs and possibly open an investigation or use them in an active case. Your resources and knowledge are valuable, so make them count!

Have mercy, Aunt Becky! Federal prosecutors on Tuesday, April 9, brought new conspiracy and money laundering charges against 16 parents involved in the alleged $25 million college admissions scandal, including “Full House” actress Lori Loughlin and her clothing designer husband, Mossimo Giannulli. This is not the type of money laundering financial institutions generally detect in their BSA compliance programs or even hear about routinely in the news. Let’s look at why these cheating allegations turned into indictments of money laundering. 

Loughlin and Giannulli were initially charged with fraud for allegedly paying $500,000 to college consultant William “Rick” Singer and his non-profit organization, Key Worldwide Foundation (KWF), which prosecutors said was a front for accepting bribes.  

According to the indictment, Loughlin and Giannulli allegedly “[conspired] to launder the bribes and other payments in furtherance of the fraud by funneling them through Singer’s purported charity and his for-profit corporation, as well as by transferring money into the United States, from outside the United States, for the purpose of promoting the fraud scheme,” a press release from the U.S. Attorney’s Office states. 

Wiretapped conversations and emails between Loughlin and Singer discussing IRS audits of KWF led to the grand jury money laundering indictmentaccording to People.com. “They’re always worried about things going on in foundations,” Singer said. “I see,” Loughlin replied, and then later said, “So we just have to say we made a donation to your foundation and that’s it, end of story.”  

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The charge of conspiracy to commit money laundering carries a maximum sentence of 20 years in prison, three years of supervised release and a fine of $500,000. The fraud-conspiracy charge also carries a maximum 20-year prison term, three years of supervised release and a fine of $250,000. The stakes associated with cheating have just been raised for Loughlin, Giannulli, and the other 14 parents in these new indictments.  

The other more famous of the cheaters, Felicity Huffman, along with 12 other parents, pleaded guilty to lesser charges of fraud and conspiracy, avoiding the additional charges 

How the rich and famous respond to these new indictments is yet to be seen, and no doubt will be of interest to the anti-money laundering community. Although the facts of this case are a bit unusual, a few takeaways for the AML community remind us to go back to the basics: 

  • Know your customers and when possible, know your customer’s customers.
  • Conduct enhanced due diligence on your Non-Governmental Organizations (NGOs) and give higher risk points to NGOs as applicable.
  • When large amounts of funds are flowing through an NGO, moving from the U.S. and outside the U.S., confirm the source and use of funds. 
  • Does the amount of funds flow and purpose make logical sense (example, $25 million to a college consultant)?  
  • When in doubt, file a SAR. 

When investigating transactional activity, remember, even Aunt Becky makes bad decisions and could end up laundering money through your institution.  

The real estate market is enticing to more than just new homeowners or investors. Financial criminals have been using the industry to clean their illicit funds for years. The limited amount of regulation around the real estate industry has made it especially easy for these bad actors to cycle their dirty money into the financial system using this avenue. Few changes have been made in the regulatory environment in almost 20 years. Ever since 2002, when real estate professionals were granted an exemption from anti-money laundering (AML) requirements, it has been an ongoing struggle to get more AML regulations applied to the real estate sector. That changed in2016 when the Panama Papers exposed an international network of offshore entities involved in tax evasion, fraud, and sanction evasion; some of which included real estate holdings. 

There are real AML risks involved in real estate, and it is part of a Bank Secrecy Act (BSA) professional’s job to help identify and prevent them 

Why real estate?  

Real estate is a proven, traditional, and well-established marketplace. People buy and sell real estate all the time using large dollar transactions, so the movement of large dollar funds is not unusual. Also, consider that real estate values generally appreciate over time, so it is an easy way to protect your fraudulent funds from an unstable market or wild exchange rate changes. 

The Association of Real Estate License Law Officials estimates that there are around 2 million active real estate licensees in the United States. Including rental and leasing licensees, the industry comprises approximately 13% of the United States’ GDP, with estimates ranging in amounts from $1.8 to $2.2 trillion. In 2017, over 5.51 million existing homes and 612,000 new construction homes were sold.According to the 2012 Economic Census, there were more than 86,000 real estate brokerage firms in the United States. These statistics show how vitally important the industry is to the United States’ economy and why it is so lucrative to financial criminals looking for a new place to wash their illicit gains.  

Reporting 

Since the real estate industry was exempted from AML requirements in 2002, the onus has been on the financial institutions in identifying and reporting suspicious or fraudulent activity. The institutions are the ones shouldering the costs of compliance, examinations, and fines.  

There are no mandatory SAR requirements for the non-financial parties involved in a real estate transaction, nor are there any beneficial ownership reporting requirements, so the use of shell corporations is still prevalent in these transactions. Think about a situation where someone uses a corporation to purchase real estate in cash. Since there are no requirements on the parties involved to report anything suspicious witnessed during that transaction, and since no bank was involved, if there were any suspicious activity, it would go unreported. 

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AML Changes 

Things have started to change, albeit very slowly. In 2012, FinCEN issued requirements for non-bank residential mortgage lenders and originators to establish an AML program and file SARs. Then, in January 2016, FinCEN issued the first “Geographic Targeting Order” related to real estate, a few months before the release of the Panama Papers. In the GTO, FinCEN began requiring U.S. title insurance companies and their affiliates to identify the persons behind companies used to pay all cash for high-end residential real estate transactions in Manhattan ($3 million and up) and Miami-Dade County ($1 million and up).  The GTOs were renewed in August 2016 and were expanded to include the following areas: 
  • All boroughs of New York City, NY  
  • Miami-Dade, Broward and Palm Beach Counties, FL 
  • Los Angeles, San Francisco, San Mateo, San Diego, and Santa Clara Counties, CA 
  • Bexar County, TX 
FinCEN would ultimately renew the GTO again in February 2017, August 2017, March 2018 and November 2018. In February 2017, FinCEN revealed that 30% of the transactions covered by the GTOs involved a beneficial owner or purchaser rep that was also the subject of a previously filed SAR. In August 2017, FinCEN expanded the GTO to include the city and county of Honolulu and also revised the GTO to capture a broader range of transactions (including wire transfers). In November 2018, the GTO was renewed and expanded to include any purchases made with cryptocurrencies. It also simplified the reporting amounts for each location to $300,000. 

What can financial institutions do? 

Ensure your BSA/AML monitoring system is capturing large spikes in activity, potential unusual or large wire transfers and rapid movement of funds (cash to wire or vice versa). Institutions need to ensure that proper due diligence is being performed and recorded on real estate-related customers and transactions. If you have address-based risk rating functionality, you can always provide higher risk to those zip codes included within a GTO. Institutions should stay up to date on any regulatory changes, such as the previously mentioned GTOs, so that you can be better prepared. Most importantly, stay vigilant!  Additional red flags to pay attention to regarding loans for real estate purchases include 
  • CDs used as collateral 
  • Sudden or unexpected payment to pay down or off a large loan 
  • The stated purpose of a loan is ambiguous or unclear 
  • Inconsistent or inappropriate use of loan proceeds  
  • Overnight loans 
  • Loan payments by third parties 
  • Loan proceeds used to purchase property in the name of a third party 
  • Permanent mortgage financing with an unusually short maturity  
  • Structured down payments or escrow money transactions 
  • Attempt to sever the paper trail 
  • Wire transfer of loan proceeds 
  • Disbursement of loan proceeds by multiple bank checks 
  • Loans to companies outside the U.S.
  • Financial statement of the business differs significantly from similar businesses
The world of real estate is always changing, and as new payment and financing methods evolve, financial institutions will need to change and evolve as well. Abrigo can help institutions of all shapes and sizes to monitor, track, and report suspicious real estate-related activity. Please contact the experts  at Abrigo for more information!

Vernice “FlyGirl” Armour kicked off BUG 2019 Monday morning with a powerful keynote speech on overcoming obstacles and breaking through to be your best self. Here are her three keys to engaging in your own life and becoming “cleared hot” to achieve your goals:

Vernice also stressed something that we believe at Abrigo: One mission, one goal, one team. We are all working together to fight financial crime, grow your institution, and make big things happen.

The cannabis industry can be hazy for financial professionals. Add the legislative issues facing the U.S. federal and state governments, and it can become highly overwhelming. Let us start with a background recap to roll up the facts, so they are more easily digestible.

The terms cannabis, marijuana, and hemp are often mistakenly used interchangeably but are considerably different. Marijuana and hemp are both primary species of the cannabis plant, and cannabinoids (CBD) are derived from hemp. So, what’s the difference?

  • Marijuana is used for both recreational and medical uses and has a 10-40% content of tetrahydrocannabinol (THC), the psychoactive component that gets the user high.
  • Hemp, on the other hand, must have .3% or less THC not to be considered marijuana and is primarily used for industrial purposes, such as textiles, building materials, fuel, and plastics.
  • The fastest growing global use of hemp is in THC-free CBD products, particularly oils and food/beverage infusions. Hemp or CBD does not get the user high.

Marijuana remains wholly illegal at the federal level as a Schedule 1 substance, ranking the plant at the same level as heroin and above cocaine and methamphetamine. However, this hasn’t stopped 33 states as well as Washington, D.C., Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands, from legalizing medical marijuana. It is legal in 10 of those states for recreational use and decriminalized in another 10 states.

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Hemp, and subsequently CBD, have always been in a legal grey area. In December 2018, President Trump signed the Agriculture Improvement Act of 2018 (commonly referred to as the 2018 Farm Bill) into law. Many financial institutions believe this new regulation legalized hemp and opened the door to safely provide financial services to the hemp industry. However, it would be misleading to claim that it completely legalized hemp and CBD. While hemp was removed from the Controlled Substances Act (CSA), no longer making it an illegal substance at the federal level, there are some stipulations:

  • It must contain less than .3% THC.
  • Persons wishing to cultivate and grow hemp must secure a license either through their state or federally-run programs.
  • CBD and its byproducts that have not been approved by the FDA remain a Schedule 1 substance under federal law (to date, only one product has been approved – Epidiolex)
  • If a CBD product can be proven to contain no THC and therefore consists solely of parts of the cannabis plant excluded from the CSA definition of marijuana, it would be arguably legal. (According to the DEA, this is nearly impossible and not financially practical for growers.)

A financial institution wanting to cast the Farm Bill’s safety net for banking hemp or CBD must ensure complete knowledge of their customer’s business and product(s), including the chemical THC composition, and the laws of the states where the customer is conducting business.

Whether your financial institution is grappling with your policy around banking marijuana-related businesses or banking hemp/CBD products, the risks are still very real. Know the risks, weigh your decisions carefully, inform your Board, and most importantly, know your customers. With thoroughly designed policies and procedures around customer due diligence and suspicious activity monitoring, your successes may be just as real if you move forward with banking this high-growth industry.

 

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Thursday, the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act of 2019) advanced by a vote of 45 to 15 in the House Financial Services Committee. The Bill (H.R. 1595) protects financial institutions from regulatory penalties for servicing the cannabis industry – both for seed-to-sale cannabis-related businesses (CRB) and businesses that service the cannabis industry such as consultants and hydroponic bulb manufactures.

The bill offers a safe harbor that prohibits regulators from discouraging financial institutions from serving the cannabis industry. It also prohibits regulators from incentivizing or encouraging financial institutions to not bank CRBs, downgrade services to a CRB, or exit a relationship with a CRB based solely on the fact that they operate in the cannabis industry. Additionally, the bill prohibits examiners from taking adverse or supervisory action on a loan made to a CRB, service provider, employee, owner, operator, or an owner/operator of a real estate business leasing to a CRB or a service provider just because they are involved in the cannabis industry.

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Most notably, the bill would make proceeds from legitimate businesses in the cannabis industry legal funds under federal money laundering statutes. The bill directs FinCEN and the FFIEC to issue guidance and exam procedures to provide institutions with clarity so they may effectively manage the risks specific to CRBs.

Many industry experts, including the American Banking Association and the Credit Union National Association, view this progress as long overdue and support the continued advancement of H.R. 1595 as it moves to a full vote in the House. 

Tax season is well underway and with that comes a little lesser-known, but equally as important season: Tax Identity Theft Season or Stolen Identity Refund Fraud (SIRF).

Tax ID fraud or tax return fraud is the use of someone else’s personal information to file a fraudulent tax return or claim tax benefits. This type of fraud costs the nation’s taxpayers an average of $5.2 billion annually. One of the biggest problems with this form of fraud is that fraudsters file these illegitimate tax returns early, armed with a fresh trove of stolen social security numbers, names and dates of birth. Their goal is to get fraudulent tax returns submitted before the actual person submits theirs. Most people do not know they are a victim until they go to file their taxes and are informed they have already been submitted.

As a BSA officer, what is your role in preventing tax ID fraud? Besides protecting your customers or members from being scammed, you have a role in identifying potential instances of tax return fraud and notifying the government by filing a Suspicious Activity Report (SAR). Most of these fraudulent returns are issued via direct deposit into accounts that could quite possibly be held at your financial institution.

Here are a few red flags to look for when identifying tax refund fraud, according to FinCEN, the IRS and law enforcement:

  1. Look for multiple direct deposit tax refunds payments made to multiple people but all deposited into the same account.
  2. Identify mule accounts established to facilitate fraud. These consist of accounts that are opened with the sole purpose of depositing fraudulent returns. Ensure your new account monitoring processes are sufficient for identifying this type of behavior.
  3. Business accounts processing tax return checks in a manner that differs from their initial stated business.
  4. Maintaining a business account for a check cashing business that processes a high volume of tax refund checks.
  5. The signature on the back of the check doesn’t match the ID of the person conducting the transaction or the same signature is used across multiple checks written to different people.

Read the full list of red flags from FinCEN here.

If you do find a transaction or transaction(s) that could possibly fall under tax refund fraud, or is suspicious in nature, do your due diligence. If necessary, file a SAR and use the term “tax refund fraud” in the narrative section with a detailed description of the activity. Additionally, contact your local IRS Criminal Investigation Field Office and alert them that a SAR was filed around tax refund fraud.

The Financial Action Task Force (FATF) conducted their first Plenary meeting of the new year in Paris on February 20-22. The FATF is a global inter-governmental “policy-making body” with objectives to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Four major strategic initiatives were accomplished during this global meeting, including:

  • Combating the financing of terrorism – this remains a top priority for the FATF. Al Qaeda, ISIL, and other terrorist organizations continue to have a significant impact in the region where they are active. FATF aims to be at the forefront of responding to these emerging threats through innovation and cooperation to deny terrorists funds and prevent them from accessing and using the international financial system to their benefit. The FATF continues to identify areas where jurisdictions are not taking targeted, impactful, and disruptive action against terrorist financing to protect the global financial system from being accessed by terrorist financiers.
  • The release of a public statementon its current actions concerning the following countries:
    • Democratic People’s Republic of Korea (DPRK)
      The FATF remains concerned by DPRK’s failure to address significant anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies and the serious concerns they pose to the international financial system. In addition to continuing enhanced scrutiny of business relationships and transactions with the DPRK, the FATF calls on its members to apply effective counter-measures to protect their financial sectors from money laundering, financing of terrorism, and weapons of mass destruction proliferation financing.
    • Iran
      The FATF has welcomed Iran’s political commitment to address its strategic AML/CFT deficiencies. In August 2018, Iran enacted amendments to its Counter-Terrorist Financing Act and in January 2019, enacted amendments to its Anti-Money Laundering Act. Both bills have passed Parliament but are not yet in full force. The FATF recognizes the progress of these legislative efforts.
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Since the bills have not been implemented, the FATF will review legislation once in full force to determine whether the measures address Iran’s official action plan, in line with the FATF standards. In the meantime, the FATF urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence towards business relationships and transactions with ties to Iran.

  • Mitigating risks from virtual assets - Recognizing the need to adequately mitigate the money laundering and terrorist financing risks associated with virtual asset activities, the FATF is setting implementation requirements for effective regulation and supervision/monitoring of virtual asset service providers. FATF clarified how the FATF standards apply to activities or operations involving virtual assets. The text of the Interpretive Note has been finalized and can be read here.
  • Identifying jurisdictions with strategic AML/CFT deficiencies:
    • FATF added Cambodia as a jurisdiction with strategic AML/CFT deficiencies. The country developed an action plan with FATF to address the most serious deficiencies. The comprehensive list can be found here.

Other Strategic Initiatives

  • The FATF emphasizes a risk-based approach to applying resources where the risks are highest. In line with that, they approved three risk-based guidance papers for the following higher-risk groups:
    • Lawyers
    • Accountants
    • Trust and Company Service Providers

These new guidance documents will be released for public consultation before their final adoption in June 2019.

The full FATF Plenary meeting report can be read here. The FATF will meet again June 16-21.

With over 200 million users in over 50 countries, Fortnite is taking the world by storm. Sixty percent of users are aged 18-24 and are harmlessly using the platform as entertainment. Yet, like any other digital channel, there are bad actors taking advantage of this online world.

Most BSA/AML professionals have been around video gaming for some time, either as gamers themselves or through their children and/or grandchildren. Similarly, money laundering has been a part of the video gaming industry for years, making its peak during the hay day of World of Warcraft. A 2013 report for the United Nations Office on Drugs and Crime revealed that online games were becoming a haven for criminals to launder money by opening many different accounts in numerous online games to move and hide illicit funds. Historically, a common methodology used by criminals was to send gaming currency to their counterparts in other countries, who would in turn cash out the funds for laundered fiat currency.

Fortnite, arguably the most popular game of the decade, is following the path of WoW and unfortunately being used for money laundering by all sorts of bad actors, including international criminal organizations. Although the official age to play the game is 12, it is widely known that younger children routinely participate and are more easily lured into schemes without being aware.

While the game itself is free, participants are encouraged to purchase Fortnite’s currency, V-Bucks, to buy outfits, cosmetics, weapons, and other items. An investigation by The Independent and the cybersecurity firm Sixgill uncovered that stolen credit cards (many of which are purchased on the dark web) are used to buy V-Bucks through the official Fortnite store, then resold at a discount to unsuspecting players. The illicit funds from the stolen credit cards come out “clean” and integrated back into the financial system. With most Fortnite players being under 18, these children are now unknowingly laundering money for criminal organizations.

The Independent/Sixgill investigation found that mentions of Fortnite on the dark web have risen directly with the game’s monthly revenue. Epic Games, the creator of Fortnite, profited $3 billion in 2018; that’s a lot of money for a “free” gaming system.

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While this all seems like a parenting problem more than a banking problem, these funds are passing through financial institutions. How do BSA officers monitor for this suspicious activity?

Look for large card purchases with V-Bucks descriptors as well as other large transactions with the keyword Fortnite. These transactions may be quite common, but it should be noted large amounts are not. For reference, the average “skin” or outfit costs between $8 - $20. An “emote” or victory dance ranges from $5 - $8.

Be diligent when monitoring for crypto activity. Bitcoin and other cryptocurrencies are used frequently for the initial dark web credit card purchases. Additionally, look out for signs that a customer or member’s card has been compromised and used for fraud.

Pay attention to any unusual transactions that stray from their normal spending patterns. This includes “test” transactions, multiple transactions of a small dollar amount to test that the card is still valid.

In addition to protecting our U.S. financial system, what can parents and other adult mentors do to protect young people from being used as money mules? As a seasoned public school administrator and current guidance counselor, Beverly Newcomb suggests the following steps be made:

  • Talk to their child about the game and the real-world risks involved.
  • Have their child play in a public area like a family room, not in a remote bedroom, so that they can monitor gameplay.
  • Watch him or her play now and then, or play along with them – understand the game.
  • Encourage their child to play without a headset during online play so that they can monitor what the other players are saying.

The most important thing for players of all ages to understand is that all purchases should only be made from the official Fortnite store or the storefront of the gaming platform that they are using. Criminals are buying V-Bucks in bulk and then reselling these preloaded accounts for a hefty discount. These “deals” are often found on third-party sites like eBay along with social media sites. The top 50 “Fortnite” listings on eBay brought in almost $250,000 in the past 60 days alone. Any large volume or discounted offer is sure to be a scheme; as the saying goes, if it is too good to be true, it most likely is.

Criminals will continue to seek out new and innovative ways to be one step ahead of financial institutions and law enforcement.  New money laundering techniques will continue to surface, so we must continue to educate ourselves and our communities. For now, let the kids have fun and be diligent about monitoring your home and your financial institution.

Major sporting events around the world are known for increased prostitution surrounding the event, including human trafficking.  Some victim advocate groups debate whether human trafficking truly increases during these events, or if more arrests are made as a result of heightened law enforcement involvement and sting initiatives. The fact remains that there is an uptick in arrests and victim rescues, many of whom are children, during these large events.

One such event drawing the attention of human traffickers is the international Formula One (F1) race, with the United States Grand Prix held annually at the Circuit of the Americas (COTA) track in Austin, TX.  The track made a costly blunder for the 2018 race, and the state of Texas rejected a request for state funding because COTA did not submit a human trafficking prevention plan by the required deadline - a $25 million mistake.

Texas law prohibits state funding from the Major Events Reimbursement Program if the event coordinators do not submit a human trafficking prevention plan 30 days prior to the event. While COTA did fulfill the requirement of filing a plan, it was due September 19, 2018, and submitted on October 3. The state had preliminarily approved the request for reimbursement from the program, but it was rescinded by the Texas governor’s office following this discovery based on “the plain language of that statute.”

COTA has received similar payments since the first F1 race in 2012.  Bernie Ecclestone, F1’s chief executive, told the Austin American-Statesman that a reduction in that payment of this size will put the future of the United States Grand Prix at risk as these funds are critical to the event’s success.

Taking human trafficking and prevention requirements seriously is trending in the right direction. Public and private recognition of human trafficking red flags is growing across the country, with law enforcement and victim advocacy groups leading the way. Thanks to states imposing consequences such as the F1 denial, major sporting events will improve the focus on their responsibilities of fighting this horrific crime.