Illegal profits generated by forced labor amount to $150 billion annually, the same as the combined profits of the four most successful companies on the Fortune 500 list.
The world accepts that slavery is a great evil, which is why there is increasing regulation to make sure that the people and companies involved incur the necessary penalties. We interviewed Alessandro Sanos, Market Development Manager for Thomson Reuters, on how data can help eradicate slavery in the supply chain.
How have some companies unwittingly funded slavery and human trafficking?
The majority of people are unaware that slavery is still thriving and has not been confined to the history books. The International Labour Organization (ILO) estimated that around 21 million people are victims of forced labor worldwide. If all modern day slaves lived in a single place, it would be the third biggest city worldwide after Tokyo and Shanghai.
According to 50 for Freedom, a campaign led by the ILO and its partners to ban forced labor, slavery is most common in:
- Domestic work
- Sexual exploitation
At some point, the illegal profits generated by these industries will emerge in the financial system.
This means that both financial institutions and corporations may be unwittingly doing business with individuals or criminal organizations that exploit communities and individuals across the globe.
For instance, a bank might be involuntarily funneling money generated by human trafficking into the wider economy. Other examples might see an asset manager add to his/her portfolio shares of a company whose CEO is affiliated to a Politically Exposed Person (PEP) that exploits slaves, whilst a corporation might not know that some of its suppliers use bonded labor.
How is the UK Modern Slavery Act having an impact on organizations?
The UK Modern Slavery Act, which passed into law in March 2015, is light touch regulation designed to push human rights higher up the public agenda. From April 1, firms with a turnover in excess of £36 million will be obliged to publish an annual statement explaining the steps they have taken to ensure that their business and supply chains are not tainted by slavery and human trafficking.
Does the legislation go far enough? The Act is a very important step and sends a strong message, but as Cindy Berman of the Ethical Trading Initiative said in a recent interview it needs to be strengthened.
There is no regulatory body to enforce the transparency clause and the Home Office (the UK’s Ministry of Interior) has not been prescriptive on the content of any statement. For instance, companies may simply say that they are taking no action to prevent modern slavery and still be compliant.
In this respect, it is likely that the pressure of reputational damage from customers, business partners and investors will prompt companies to take action in order to avoid being singled out.
How can organizations prevent being impacted by tainted funds?
While no risk management program will be able to completely eradicate forced labor and slavery from the global supply chain, a risk based approach and a robust client on-boarding and on-going monitoring process can assist in reducing these risks. Organizations should truly understand their business partners and supply chain, adopt a risk based approach, and ensure robust policies are in place.
Similar to the methodologies used to comply with Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) risk assessments, financial institutions and corporations may need to consider their exposure to PEPs as their influence and status may allow them to circumvent labor legislation.
They will also need to review in detail those suppliers, countries and industries that have been identified as “high risk” during the initial supplier on-boarding assessment.
As an example, the U.S. Bureau of International Labor Affairs (ILAB) identified that gold, cotton, and sugar cane are the top three commodities and goods produced by child or forced labor. In the same report India, Bangladesh, and Burma appear as the top three countries with the most industries affected.
How is Thomson Reuters involved in fighting slavery?
We provide technology driven intelligence that allows clients to conduct risk assessments and identify those third parties who represent a heightened risk of forced and bonded labor.
As a result, our clients are able to disclose the risks they are exposed to, maximize their sustainable commercial opportunities, avoid reputational damage and prove to regulators they have carried out appropriate due diligence.
At a corporate level, our senior leadership has taken an active role in the fight against slavery having announced our commitment to develop a global intelligence platform. Working with anti-slavery NGOs and agencies and using our latest technology and powerful data analytics, we will aggregate, normalize, and amplify what the organizations see on the ground.
To further assist in the fight against modern slavery and exploitation, for every new World-Check customer, Thomson Reuters makes a donation to the Thomson Reuters Foundation. Among its initiatives, the Foundation recently launched the Stop Slavery Award to recognize the companies which are best in class in the fight against slavery in their supply chains, and the #ChooseToSee campaign against child slavery.
How can I find out more, and what actions can I take?
The white paper Expanding Existing Due Diligence Programs To Cover Modern Day Slavery In The Supply Chain helps organizations understand how to identify the risks associated with forced labor, and how to apply heightened due diligence to comply with current legislation and support corporate social responsibility programs.
Other reading includes the article The role of intelligence in the disruption of human trafficking, slavery and forced labor. Human trafficking and forced labor are a profit-driven illicit trade so awareness of the role that financial institutions can play in disrupting the movement of funds introduces a potential and powerful partner in stopping this illicit exploitation.
And I would invite everyone to read about the 50 for Freedom campaign to support the ratification of ILO’s Protocol on Forced Labor that aims to restore hope and freedom to millions of people trapped in modern slavery.
As Jean-Jacques Rousseau once wrote:
“The words slave and right contradict each other, and are mutually exclusive”.
View this post as it originally appeared on the Inside Financial & Risk blog.