What is modern slavery and human trafficking | and how due diligence measures help?
Generating about $150 billion US dollars annually, human trafficking and modern slavery are the third global largest source of criminal profit next to drug trafficking and trading counterfeit goods. Analyst, Fiona Harmsen reports…
Most of this dirty money moves through the global financial system. Therefore, financial institutions play a dominant role in the fight against human trafficking and modern slavery.
Slavery exists in situations of labour, domestic and commercial sexual exploitation, in which the person cannot refuse or leave due to threats or violence, but also in a situation in which someone exercises a power of ownership on that person.
According to the International Labour Force, in 2016, 24.9 million people were victims of forced labour.
Human trafficking is the “recruitment, transportation, transfer, harboring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation” (Palermo Protocol 2000)
The 3 most common types of human trafficking are sex trafficking, forced labour, and debt bondage. Human trafficking goes from using children for pornography or armed conflicts, to exploiting adults in to forced labour.
How are human trafficking and modern slavery connected to financial institutions and what are their financial footprints?
From the manufacturing of our electronical devices to the food available in our supermarkets, our products can potentially be generated from forced labour coming from publicly listed trading companies that stock up major holdings from institutional investors.
On one hand, the financial sector can be connected to Human trafficking and modern slavery via their own operations through their own business; this can be done directly, however, the most common connection lies through client engagement: many employees in financial institutions can play a major role in identifying and reporting signs of human trafficking.
On the other hand, financial institutions can also take part of human trafficking and modern slavery via their business relationships, which includes but is not limited to investment, payments, and lending.
As an illustration, a financial institution investing in a business in which modern slavery occurs.
These business relationships and connections vary: they can be with upstream providers of financial inputs and services or with downstream clients.
For instance, financial institutions produce services based on upstream financial inputs, such as subscriptions into banking borrowing.
The providers of these inputs may themselves be linked to human trafficking and modern slavery, especially if they are inputting capital generated from human trafficking and modern slavery.
Or, institutional may own equity stakes in businesses that rely on human trafficking and modern slavery directly or in their supply chains.
Or, banks may lend to such firms, insurances may provide them policies, financial institutions may provide payment services to businesses involved in sex trafficking etc.
How can due diligence help manage human trafficking and modern slavery?
Not only due diligence is a requirement of anti-money laundering legislation, it is also a way to help in the fight against modern slavery and human trafficking.
By identifying the signs
Signs recognition of modern slavery and human trafficking is the first step in order to help managing it.
These signs can be found with the help of due diligence via behavioural indicators (such as evidence of emotional or physical abuse) and KYC process indicators (such as false ID documents or criminal associations).
Additionally, by using monitoring technology, financial institutions can recognize patterns of underlying human trafficking crimes in financial transactions.
These financial transactions can be such as hotel reservations made by the same individual for two rooms during the same period of time, or frequent purchases of small amounts of bitcoins.
On another hand, an unusual or unrelated number of joint account holders can also be a sign of potential modern slavery and human trafficking.
By managing the risks
Alongside with identifying the signs of modern slavery and human trafficking, due diligence also helps to manage these risks.
The process of managing risks comes in different shapes. It can be through facilitating asset confiscation and restitution, through revealing trafficking organisation membership and structure, or even through demonstration the motive of traffickers.