A new report concludes that employees and organisations in the financial services industry do not see the crimes and human rights breaches described in the UK Modern Slavery Act 2015 as something they can prevent. The report aims to dispel this misconception by providing greater insights, knowledge, and awareness of human exploitation within the UK, and highlights what civil society and private enterprise can do to prevent such crimes.

On 18 January 2021, the UK Independent Anti-Slavery Commissioner, Dame Sara Thornton, published the report: Preventing Modern Slavery & Human Trafficking – An Agenda for Action Across the Financial Services Sector (the Report). The Report reveals that 36% of financial industry employees think their organisation has no influence at all in combating modern slavery and human trafficking (Modern Slavery).

The Report warns that the COVID-19 pandemic has forced companies into financial distress and insecurity and, as a result, it is likely to increase the number of potential Modern Slavery victims due to efforts by companies to remain profitable to the detriment of suitable working conditions. 

Key Takeaways from the Report

We set out below some key takeaways from the Report:

What is Modern Slavery?

• Modern Slavery covers a range of complex crimes that involve multiple forms of exploitation, including human trafficking, slavery, servitude, and forced or compulsory labour. Such crimes take place in every country, and in every industry and sector in the world.
• Modern Slavery is the third most profitable organised crime globally after drug trafficking and counterfeit goods.
• In 2012, the International Labour Organisation estimated that Modern Slavery generated US$150 billion annually in profits. The figure is likely to be much higher now.
• Over 40 million people were held in Modern Slavery on any day in 2016 and of that number, 16 million were victims of labour exploitation in private businesses.
• An estimated 136,000 victims are currently caught up in conditions of Modern Slavery across the UK, in sexual, labour, and criminal exploitation, including children forced to traffic drugs along county lines.

What role do financial institutions play?

Financial institutions may be connected to several thousand companies directly through their corporate lending or investment portfolios, and those companies in turn may be connected to many more in supply chains. With each investment, investors, lenders, and other stakeholders are exposing themselves to Modern Slavery risks – capital being lent or invested may be contributing directly or indirectly to Modern Slavery.

Furthermore, illicit proceeds of Modern Slavery are likely to flow through banks and other financial institutions used by both the perpetrators and victims of these crimes. Any criminal proceeds generated by Modern Slavery and channelled through banking systems, will become criminal property and, thus, be a separate money laundering offence.

What is the current awareness of these issues?

Despite the far-reaching effects of Modern Slavery as indicated in the figures above, the Report concludes that there is little awareness of the prevalence of this in the finance sector. More specifically, the Report found that:

• 43% of board level managers and director level employees either did not know whether their organisations had a Modern Slavery policy to manage their slavery risks, or could not confirm whether their organisations have a relevant policy at all;
• 45% of all financial services employees said they would not know who to report suspected instances of Modern Slavery or human trafficking to within their organisations; and
• 71% of financial industry employees stated that they had never participated in any form of training with their current employers regarding Modern Slavery.

What should financial institutions be doing to combat Modern Slavery?  

The following are recommendations taken directly from the Report:

• Tone at the top
  • Senior leaders can contribute by publicly acknowledging the possible links between Modern Slavery and their business activities and supply chains.
• Monitor and report
  • As a legal requirement stipulated in section 54 of the UK Modern Slavery Act 2015 (the UK MSA), commercial organisations with an annual turnover of £36 million or more that carry on business (or part of their business) in the UK, are required to publish an annual slavery and human trafficking statement setting out steps they have taken to address Modern Slavery in their supply chain and in any part of their own business. The UK MSA suggests additional information to include in the statement.
  • In September 2020, the UK government announced its intention to introduce new measures to strengthen reporting obligations under the UK MSA, and so we expect the responsibility of companies to monitor and report their Modern Slavery risks and mitigation measures to increase in the near future. Therefore, companies not currently required by law to publish a Modern Slavery statement should consider producing an annual slavery and human trafficking statement and anticipate the publication of that statement becoming mandatory.
  • Regulatory efforts to curb Modern Slavery are not limited to the UK. Since the UK MSA came into force in October 2015, other countries have followed suit: The French Vigilance Act was signed in 2017, Australia enacted its Modern Slavery Act in 2018, and the Dutch government introduced its child labour due diligence law in 2019. Other jurisdictions, including Canada, Germany, Hong Kong, and Switzerland, currently have similar initiatives in the pipeline. To that end, there are far-reaching obligations to monitor and report on Modern Slavery risks and mitigation measures.
  • When compiling a Modern Slavery statement, companies should monitor their supply chains, for example IT services, employment services, office supplies, and construction, by undertaking appropriate due diligence, and also monitor their activities across all operations. This will involve coordinating financial crime teams detecting signs of money laundering and other financial crimes. Investors, lenders, and other stakeholders should carry out due diligence on prospective investments.
• Detect and disrupt
  • Modern Slavery detection should be an integral part of mandatory company training and should feature training on anti-money laundering, bribery, and corruption that highlights Modern Slavery risks.
  • Companies should conduct ongoing monitoring of customers, suppliers, and staff with a risk-based approach.
• Invest and engage
  • Investors, lenders, and other stakeholders should seek anti-Modern Slavery assurances as a pre-condition of any investment or lending terms.
  • Companies should prepare a risk tolerance map outlining their acceptable level of risk for their objectives and develop a scenario-based set of action protocols. This should include clear examples of when to accept or withhold funds, and should require sign off from the Board of Directors.
  • When Modern Slavery risks are identified within a company’s business or supply chain, investors and lenders are encouraged to work with the company to eliminate such risks, rather than immediately divest from the company.

Risks of Non-Compliance with the Law or Failure to Take Action

• Financial risk: In the UK, failure to publish a satisfactory slavery and human trafficking statement pursuant to the UK MSA can result in a High Court injunction requiring the company to comply, as well as an unlimited fine if compliance with the injunction is not achieved.
• Regulatory risk: As Modern Slavery often contains elements of money laundering, any financial institution found to be holding illicit proceeds of Modern Slavery will be liable for the criminal offence of money laundering.
• Legal risk: Many Modern Slavery activities can also be framed as employment violations, which can lead to individual (and potentially class) employment action, for example, failing to pay the National Minimum Wage or breaching of the Working Time Regulation.
• Reputational risk: Investors, lenders, and other stakeholders are exposed to reputational damage if the companies they invest in are found to employ poor labour practices. There has been increasing interest from stakeholders and the general public in what companies, including financial institutions, are doing to protect the most vulnerable members of society. There are even websites that “name and shame” companies that fail to comply with business and human rights obligations. As a result, companies that fail to meet the required standards to monitor and stamp out Modern Slavery risks within their operations, may find that their business partners and clients are less willing to work with them.

Conclusion

Modern Slavery has always been present in the UK, including in the financial services industry, and the COVID-19 pandemic has seemingly aggravated the situation, presenting more opportunities for Modern Slavery perpetrators. Therefore, it is essential for all companies in the finance industry to respond to the Report’s call for action and ensure that no one in the business (or in the supply chain) is turning a blind eye to the issue.

How Can We Help?

We are ready to assist our clients in getting into a desirable position to take responsibility and combat Modern Slavery by:

• Reviewing and drafting anti-Modern Slavery policies, as well as Environmental, Social, and Governance (ESG) policies more broadly;
• Preparing an annual Modern Slavery statement in accordance with the legal requirements under the UK MSA, other relevant legislation, and market standards;
• Providing training to employees on both the legal and practical Modern Slavery risks; and
• Undertaking due diligence to identify red flags from suppliers and other third parties.

Stephanie Pong and Femi Omisore, trainee solicitors in our London office, contributed to the writing of this alert.

[View source.]