4 April 2024

13 min read

Modern Slavery and the role banks, investors and corporates have in the fight against it

inside of a truck

Slavery may appear to most of us as a thing of the past, but according to estimates, nearly 50 million individuals around the world are currently victims of Modern Slavery. Profits generated from forced labour globally are estimated to amount to approximately USD 236 billion every year. In a recent S-RM survey of 550 corporates and 200 investors, Modern Slavery also ranked as the most common issue to be included under the ‘Social’ pillar of an ESG programme. But how does forced labour relate to Modern Slavery and what role do banks, investors and corporates have in fighting against it?

In this article, Mario Levin examines the current regulatory landscape around Modern Slavery and looks at how, for the first time in Ecuador, one company and five of its senior executives found themselves criminally convicted of Modern Slavery offences. As criminal convictions spread to more jurisdictions, there will be nowhere that Modern Slavery can hide.

What is 'Modern Slavery'?

The term Modern Slavery encompasses a variety of conditions in which individuals are held, or forced to carry out labour, in involuntary circumstances. The two most common forms of Modern Slavery are human trafficking, which consists of the recruitment, transportation, and transfer of people through force, fraud, coercion or deception, with the aim of exploiting them, either sexually or for profit; and forced labour, where individuals are coerced into carrying out any type of labour or services, usually under the threat of penalty or punishment. The most widespread example of forced labour is debt bondage, also known as bonded labour, where victims are manipulated into working for little or no compensation to repay a debt. Instances of child labour and forced marriage, practices which are common in many parts of the world, will also nearly always fall under the umbrella of Modern Slavery.

The figures around Modern Slavery are particularly grim; the International Labour Organization (ILO), a UN agency setting international labour standards, estimates that nearly 50 million people around the world are currently living in conditions of Modern Slavery. According to a study published by the ILO in March 2024, the illegal annual global profits generated in the private economy from forced labour amounted to USD 236 billion, reflecting an increase of 37 per cent from the USD 64 billion calculated a decade ago, in 2014. This increase is attributed to both the growing number of people forced into labour and higher levels of profit generated from each victim.

The Global Slavery Index

According to the Global Slavery Index,  the two countries with the highest rates of Modern slavery are North Korea (10 per cent of population) and Eritrea (9 per cent), each having a high prevalence of state-imposed forced labour. Following on the list are:

  • Mauritania (3.2 per cent), which only abolished slavery in 1981
  • Saudi Arabia (2.1 per cent), whose workforce is majority comprised of migrant workers
  • Türkiye (1.6 per cent), which hosts millions of refugees from Syria.

No region in the world, however, is free from Modern Slavery; in 2018 there were approximately 1.3 million victims of Modern Slavery in the European Union.

Modern Slavery: the regulatory landscape

Eradicating Modern Slavery has been a defined priority for the global community for the last couple of decades. Most notably, the 2030 Agenda for Sustainable Development, which was adopted by UN members in 2015, created 17 global Sustainable Development Goals (SDGs), of which SDG 8.7 calls on countries to “take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.” To this end, a wide array of regulatory acts and domestic legislation to combat Modern Slavery have been put in place. For example, in 2015, the UK government published a flagship Modern Slavery Act, which has set out a large number of provisions, standards and measures relating to Modern Slavery, most notably requesting companies to publicly disclose statements on their policy on Modern Slavery and human trafficking. However, while serving as a significant step forward in combatting Modern Slavery, it has also been subject to much criticism over its focus on enforcement rather than victims, while at the same time not setting sufficient enforcement mechanisms or meaningful penalties for non-compliance. In February 2024, a select committee was appointed by the House of Lords to conduct a parliamentary inquiry into the impact and effectiveness of the Act. With discussions planned for later in April, further changes are ultimately expected to be made to the Act.

In the EU, the two most notable directives regulating Modern Slavery are: the Corporate Sustainability Reporting Directive (CSRD), which came into effect for the first tranche of companies to fall in scope in January 2023 and obliges companies to report on Human Rights risks, including risks related to Modern Slavery, in their annual sustainability reports; and the Corporate Sustainability Due Diligence Directive (CSDDD), which was approved by the European Council in March 2024, and will force companies falling under scope to conduct due diligence on their value chains. The approved directive, which will be voted on in the Legal Affairs Committee of the European Parliament later in April, is a watered-down version of the original proposal, particularly in relation to the size of companies falling within scope. That said, it would still be the first time that the UN Guiding Principles on Business and Human Rights will be codified in EU law, introducing to businesses the need for pro-active Environmental and Human Rights due diligence, which would also be looking into the risks of Modern Slavery in their value chains.

In the US, the most significant regulatory directive addressing Modern Slavery is the Trafficking Victims Protection Act (TVPA), which came into effect in 2000 and has been re-authorised on several occasions since then, including in 2018. The TVPA sets out measures aimed at preventing human trafficking, such as public awareness campaigns, education and training programs, as well as international cooperation, to address the root causes of trafficking. It also has defined penalties for traffickers and provides law enforcement agencies with the tools to investigate and prosecute trafficking offences. Critics of the TVPA have flagged the underreporting of human trafficking cases, which results from these cases not being investigated as such by law enforcement, as well as gaps in victim identification and support offered by the Act.

In Australia, the Modern Slavery regulatory landscape is rapidly changing. In January 2019, its Modern Slavery Act came into effect, requiring certain large entities operating in the country to report annually on the risks of Modern Slavery in their operations and supply chains, as well as the actions taken by them to address these risks. However, in May 2023 the Australian Government published a review report flagging several issues with the Act, mostly in relation to variability in the standard of reporting and lack of enforcement on the reporting obligation. According to a proposed bill from November 2023, which is currently under review, the Australian Anti-Slavery Commissioner will have the power to enforce compliance with the Act by engaging with reporting entities and the community, supporting victims and advocating to the Government.

The Financial Sector and its role

One of the most contentious debates around the EU CSDDD relates to the inclusion of the financial sector within its scope. While financial institutions are now included in the current scope of the law, they are only responsible for their own operations and upstream business partners. This means that banks’ investments and lending activities, which typically form the lion’s share of their business, are currently excluded from CSDDD obligations. EU members have agreed to discuss their inclusion at a later stage. Nevertheless, even in its weakened version, the CSDDD is on the front burner for financial actors; in S-RM’s latest research report, where we surveyed 550 corporates and 200 investors across the UK, France, Germany, the Netherlands and the US, 25 and 24 percent of the investors and financial services companies we spoke with, respectively, ranked the CSDDD as the ESG regulation or legislation causing them the most concern.

Even in its weakened version, the CSDDD is on the front burner for financial actors"

According to a report published in 2021 by the UK Independent Anti-Slavery Commissioner, when asked about the impact their work may have on global Modern Slavery, large numbers of financial sector workers could only consider direct examples, such as whether office cleaners, caterers, and construction workers in their premises were victims of such practices. 36 percent of financial industry workers surveyed believed that their organisation had no influence at all in combatting Modern Slavery. The truth is, however, that as gatekeepers to capital, the financial sector holds tremendous responsibility and it is in a unique position to help eradicate Modern Slavery, even before regulation increases its responsibilities.

For example, Finance Against Slavery and Trafficking (FAST), a multi-stakeholder initiative based at the United Nations University Centre for Policy Research, identified that among the greatest factors pushing vulnerable individuals into human trafficking and Modern Slavery is their lack of access to financial services. Millions of individuals around the world, particularly from poor or disadvantaged backgrounds, are currently unable to access the financial system altogether, diminishing their resilience to financial shocks and preventing them from accumulating capital, two factors which increase vulnerability to Modern Slavery and human trafficking by pushing individuals and families into risky borrowing, labour and migration practices.

One of the most efficient tools in the hands of banks and financial institutions is the filing of Suspicious Activity Reports (SARs), which are meant to flag suspicious or potentially suspicious activity by clients."

In many cases, those managing the victims’ finances, and who interact with the financial system on their behalf, are the perpetrators. This represents an opportunity for financial actors to identify, and take action against, accounts which are being used for Modern Slavery. One of the most efficient tools in the hands of banks and financial institutions is the filing of Suspicious Activity Reports (SARs), which are meant to flag suspicious or potentially suspicious activity by clients. SARs are currently being used in compliance with Anti Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) regulations. As technology develops, the addition of Modern Slavery and Human Trafficking indicators to SARs will be crucial in any genuine attempt by a bank to identify these offences. Deeper collaboration and engagement between financial institutions and Financial Intelligence Units and law enforcement agencies will be necessary.

The ‘Social’ ESG duty of investors

Steering the flow of global capital, investors also hold tremendous responsibility in helping to eliminate Modern Slavery. The last decade has seen a significant increase in the focus on ESG factors in investments worldwide. However, while environmental metrics (such as carbon emissions, energy efficiency and water usage) have been relatively simpler for investors to measure, track and benchmark, Modern Slavery, just like the wider ‘Social’ pillar of ESG, has posed a bigger challenge in its identification within investment decisions. In S-RM’s latest research report, we discovered that the ‘Social’ pillar of ESG is becoming increasingly important to investors. 66 percent of surveyed companies, and 58 percent of the investors expect their ESG budgets to rise in the next five years, with ‘Social’ receiving a greater allocation.

This complexity can make it challenging, both for corporates and for their investors, to have full visibility of human rights abuses occurring at various stages of production and distribution."

In sectors which are considered at a higher risk for Modern Slavery, such as extractives, construction, manufacturing, agriculture and fishing, supply chains are often complex and global, involving multiple tiers of suppliers, subcontractors, and intermediaries across different regions. This complexity can make it challenging, both for corporates and for their investors, to have full visibility of human rights abuses occurring at various stages of production and distribution. In some countries, where governments limit the work of independent media, civil society organisations, and human rights monitoring bodies, the identification of Modern Slavery can become even more challenging, requiring companies to use external support to obtain other methods of intelligence, such as on-the-ground site visits or the use of satellite imagery. It is therefore no surprise that supply chain risk scored highly as a regulatory concern in our survey, ranking second among corporate respondents and third among investors.

It also follows that within the ‘Social’ pillar of ESG, Human Rights and Modern Slavery have been on top of corporates’ agenda. Companies in extractive industries, which are characterised by more complex supply chains, have named Human Rights and Modern Slavery as the most measured KPI, with 60 percent, 57 percent and 56 percent of respondents in oil and gas, mining and resources and FMCG, respectively, all stating they have KPIs or targets relating to Human Rights or Modern Slavery. The common denominator for the supply chains used in these industries is their reliance on low-skilled labour, which can more easily be exploited. These industries also have higher rates of migrant workers and other vulnerable populations, who can be more susceptible to exploitation due to poverty, lack of legal status, language barriers, or social exclusion. Additionally, their supply chains often span across remote and isolated locations, where infrastructure, government presence, and access to social services may be lacking, making it easier for exploitation to occur without detection.

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Domestic legislation: the case of Furukawa Plantaciones

When asked in our survey which piece of ESG legislation is causing most concern, the top answer was ‘domestic Modern Slavery laws’, followed by ‘domestic supply chain legislation’, flagged by 23 percent and 18 percent of corporates, respectively. This result is not unexpected given the sheer variety of domestic legislation on Modern Slavery around the world, as well as the challenge companies may face in understanding and ensuring all their global operations are sufficiently compliant with different pieces of legislation.  

A recent case illustrating why domestic Modern Slavery legislation and rulings should be of concern to businesses is that of Japanese company FPC Marketing Co. Ltd., and its Ecuadorian Abacá-harvesting subsidiary Furukawa Plantaciones CA (‘Furukawa’). Abacá is a natural fibre derived from the leaves of the Abacá plant, which is used to make paper money, rope, tea bags, cars and a wide variety of other products. Since its foundation in 1963, Furukawa, the world's second largest producer of Abacá, has employed workers in Abacá plantations in the Ecuadorian cities of Santo Domingo, Los Rios and Esmeraldas, exporting the harvested fibre to the US and Europe. Ecuador is an important producer of Abacá, estimated to be exporting about 7,000 tonnes every year to the US, Europe and Asia, generating more than USD 17 million.

Hundreds of families working at Furukawa’s Abacá plantations, predominantly from Afro-Ecuadorian descent, have been subject to enduring conditions of minimal pay, exploitation, lack of access to adequate basic services, education, health, sanitation and other violations of their rights. In May 2018, with legal support from Ecuadorian civil society group Ecumenical Human Rights Commission (CEDHU) and an alliance of various other organisations, victims of the company’s operations formally accused it of maintaining at least three generations of rural workers in conditions of Modern Slavery. Their claim was supported by a report published the same year by the Ecuadorian Ombudsman's Office from its own census of 1,244 employees, which flagged instances of “subhuman” housing conditions, contaminated drinking water, child and adolescent labour and an absolute absence of labour rights. The testimonials from those working at Furukawa’s plantations include stories of generations being born into slavery, without knowing the reality which exists outside the confines of the plantations. When the case became public in 2019, one of the victims interviewed by the press claimed they had “been treated like cattle”. As a response, the company reportedly demolished most of the camps where the ex-labourers and their families lived, evicting hundreds of people. In February 2021, the tribunal of the Santo Domingo de los Tsáchilas province indicted Furukawa on charges relating to Modern Slavery.

Since then, a long legal battle has been in place in Ecuador, with a series of appeals filed by both the prosecution and the defendants. Finally, in February 2023 the Constitutional Court of Ecuador, a unique judiciary body protecting the constitutional rights of Ecuadorians, upheld the previous ruling against the company, as well as five of its senior executives, attributing them with the liability for offences of Modern Slavery and human trafficking for purposes of labour exploitation. This marked the first time in the history of Ecuador that both a legal entity and natural persons were found guilty of such offences. In its ruling, the Constitutional Court was also critical of the Ecuadorian government, particularly the Ministry of Labour which had, ironically, awarded the company with a recognition of its labour practices in 2005. In its ruling, the court criticised the ministry for its lack of proper inspections ahead of the award and afterwards, ordering the government to publicly take responsibility.

At the time of writing, discussions are still underway with regards to the final sentence that Furukawa will be subject to, with a discussion in the constitutional court planned later in April 2024.

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The importance and impact of cases like Furukawa’s on the global accountability regarding Modern Slavery cannot be overstated. It shows that even in countries where Modern Slavery may not be at the top of the government’s agenda, the judiciary can play an important role, particularly when Modern Slavery is interpreted by the court as a violation of citizens’ constitutional rights.

As domestic and supranational regulations and legislation around Modern Slavery grow, it is now clear that identifying and mitigating Modern Slavery must be on the corporate and investor agenda.

Any form of Modern Slavery violates the most basic human right for liberty, and no expression of Modern Slavery should be tolerated or permitted by any business in the 21st century. But beyond the criminal liability held by the direct perpetrators, and enablers, of Modern Slavery, companies must now bear responsibility for offences taking place in their value chains. Closing one eye on them is no longer an option.

For this reason, a simple ‘box ticking' in the form of a statement on Modern Slavery policies is insufficient. In order to eliminate, or at least significantly reduce, the risk of Modern Slavery in their supply chains, companies need to adequately map their risk and take pro-active measures in the identification and mitigation of Modern Slavery.

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