…the role of the financial sector
Gone are the days when our forefathers resisted being taken to other countries to work. However, today’s generation is doing all they can to leave the shores of their countries (through legal or illegal means) to Europe or the Americas for non-existent greener pastures. According to the International Labor Organization (ILO), 49.6 million people were living in modern slavery in 2021, of which 27.6 million were in forced labor and 22 million in forced marriage. Of the 27.6 million people in forced labour, 17.3 million are exploited in the private sector; 6.3 million in forced commercial sexual exploitation, and 3.9 million in forced labour imposed by the State. Women and girls account for 4.9 million of those in forced commercial sexual exploitation, and for 6 million of those in forced labor in other economic sectors. 12% of all those in forced labor are children. More than half of these children are in commercial sexual exploitation.
In Ghana, according to the most recent figures from the 2016 Global Slavery Index, there are 133,000 people living in slavery. Also, 41.59% of the population of Ghana are vulnerable to modern slavery. These statistics are worrying and Financial Institutions can play a role in the fight against modern slavery and human trafficking. This criminal organization has grown to generate billions of dollars for criminals and their associates. According to the ILO, this illicit trade contributes more than $150 billion annually to the criminals, translating into more than $285,000 every minute or $4,750 per second profit to the criminal.
It is against this backdrop that I want to highlight how Financial Institutions can play a role in enhancing the activities of this criminal organization.
The ILO report defines Modern slavery as comprising of two principal components – forced labor and forced marriage. Both refer to situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, deception, or abuse of power. Modern slavery and human trafficking are the recruitment, transportation, receipt and harboring of people for the purpose of exploiting their labour and they can affect anyone of any age, gender or nationality.
The financial sector is at a critical juncture, from where it can lead the transformation of our global economy to address Modern Slavery and Human Trafficking (MSHT) and its root causes. Given that, the financial sector is so intertwined in people’s daily lives, its action can help change how the global economy works.
Unknowingly, financial institutions can help advance the activities of modern slavery and human trafficking in a number of different ways. Firstly, this is facilitated by allowing the proceeds of slavery and trafficking to be laundered through the financial systems without having the monitoring tools to identify them. This can happen when a criminal comes in to make transfers to associates or third parties; lease properties financed by the financial institutions; purchase high-value goods and/or through commercial operations such as hotels, casinos, and nightclubs. The inability of Financial Institutions to identify the financial red flags within the operations of modern slavery and human trafficking exposes them to regulatory sanctions and fines. Financial institutions should retool their existing Anti Money Laundering (AML) protocols to include modern slavery and human trafficking as one of the emerging criminal activities to track.
Another way financial institutions promote the activities of modern slavery and human trafficking is when they allow the traffickers to open personal and/or business accounts to handle their criminal activities proceeds. Traffickers need these accounts to move modern slavery proceeds from one location to another. They tend to use these accounts to wash their dirty money. Financial and/or other non-financial institutions that deal in remittance, credit card issuance, casinos, retail banking are exposed to higher levels of risk as human trafficking is often a cash-based activity. Once the account is opened, the criminal is open to any investment product of the financial institution, which further helps the criminal wash the ill-gotten money
Granting credit facilities to customers within certain industries without taking into account modern slavery and human trafficking risk is one of the ways financial institutions help to promote the criminal activities. Financial institutions can be connected to modern slavery by lending to, or insuring, businesses that perpetrate, rely on, or benefit from, modern slavery in their supply chains. For instance, a bank may provide project finance for a construction project that uses forced labour. Players within the manufacturing and extractive industries, casinos, night clubs, and agriculture (including fishing) are all vulnerable to modern slavery and human trafficking as research has shown that they engage the services of migrants and undocumented people.
One other way a financial institution can foil the activities of modern slavery and human trafficking is to carry out proper due diligence (KYC procedures) before onboarding and/ or granting credit facilities, especially companies within the manufacturing, packaging, extractive, hospitality and agriculture industries. These industries are at high risk of becoming embroiled in modern slavery and human trafficking. These businesses are more exposed to this issue due to their complex supply chains, core business and recruitment of migrant workers. Financial institutions should update their AML/ CFT procedures to include modern slavery in conducting due diligence of these companies. Proper and appropriate risk profiling, alongside red flags indicators, should be employed to detect this crime.
Another way of tackling the problem of the abetting of modern slavery and human trafficking is creating the necessary awareness, training and understanding of human trafficking among staff and factoring it into all risk activities with the financial institution. The understanding of modern slavery and human trafficking needs to be inculcated into the risk culture of financial institutions, straight from the top (board of directors) to the bottom (security personnel). Empowering the first line of defense with knowledgeable skills to gain intelligence on human trafficking activities will help mitigate the associated risk. Financial institutions should seek for external professional advisors to create awareness among staff and support the transformation process, if they do not have expertise internally.
To help fight the menace of modern slavery and human trafficking, financial institutions should collect and leverage on existing data to perform geographic-based risk assessments of their commercial and corporate clients. Data including but not limited to, the type of labour force, location of firm can be a red flag when performing due diligence on clients. Industries that, directly or indirectly use unskilled manual labour have a higher propensity to engage in forced labour practices. The lack of governance and internal control measures for these companies, coupled with low or non-existing laws and regulations, increases the risk of modern slavery and human trafficking. Risk assessment that considers the connection of industry, client risk and product risk would allow financial institutions to establish a preliminary understanding of the risk profile of their clients and adjust their client profiles to match their own risk appetite.
Financial institutions can help frustrate the activities of modern slavery and human trafficking when they make it a point to engage and collaborate with NGO groups that support victims of human trafficking. This will help understand the methodologies used by these criminals and also have a victim-focused perspective about the issue.
Last but not least mitigating control is for financial institutions to introduce sustainable financing into their credit and investment processes. Sustainable finance refers to the process of taking Environmental, Social and Governance (ESG) considerations into account when making investment and lending decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects.
The fight against modern slavery and human trafficking can only be won when all stakeholders (government, media, law enforcement agencies and literally everyone) not only the financial institutions come on board to thwart the activities of these criminals and also show great love and affection for the victims by helping them to integrate into society again.
Would you mind doing me a favor? Share this article with someone so that the awareness of modern slavery and human trafficking could be spread to avoid being used as a conduit by criminals.
If you require further information on this article, please contact Richieson @ [email protected].