Policy Outlook

Modern Slavery and Financial Institutions

The United Nations International Labour Organization estimates that over 40 million people are enslaved around the world; modern slavery is one of the worst forms of organized crime. The term modern slavery currently has no globally agreed upon definition. However, it is generally used to describe situations where coercion, threats, or deception are used to exploit victims and undermine or deprive them of their freedom. This serious exploitation includes trafficking in persons, slavery, forced labor, debt bondage as well as the worst forms of child labor.

Modern slavery is a topic gaining momentum at the international level. This has been facilitated by the United Nations Sustainable Development Goals which ask for immediate and effective measures to end modern slavery and human trafficking. The recently published report, Unlocking Potential: A Blueprint for Mobilizing Finance Against Slavery and Trafficking, sets out five goals for the financial sector and advocates for industry prioritization of this issue.

Multiple jurisdictions increasingly address the problem through binding regulation. These regulations should be of interest to financial institutions – they could face reputational and legal risks related to slavery issues linked to their suppliers or contractors, or their investment decisions. Regulations on this matter that are relevant to financial institutions include:

  • UK Modern Slavery Act: since 2016 has required companies to publish an annual slavery and human trafficking statement. This regulation is currently under revision and is expected to further strengthen transparency in supply chains requirements.
  • Australian Modern Slavery Bill: outlines similar requirements to the UK Modern Slavery Act and proposes a first reporting deadline of December 31, 2020. In September 2019, a guidance for reporting under this bill was published.
  • Draft Hong Kong Modern Slavery Bill: includes a ‘comply or explain’ disclosure requirement for certain businesses which would have to examine their operations and supply chains and report that modern slavery and human trafficking were not taking place.
  • Brazilian Central Bank Resolution on Slave Labor: tackles financial institutions’ operations and business relationships, in particular at the level of providing or renewing financial services.
  • Dutch Child Labour Due Diligence Law: requires companies to determine whether child labor is present in their supply chains and if so, design and implement action plans. Companies will have to submit their initial statements by July 1, 2020.

It is important to remember that modern slavery is also considered to be part of mandatory human rights due diligence legislation such as the French Duty of Vigilance law, the German Draft Act on Mandatory Human Rights and Environmental Due Diligence, and the proposed Swiss Responsible Business Initiative.

In addition, modern slavery can be linked to money laundering, terrorist financing, and cause other corporate liability exposure. Financial institutions should thus be aware of the issue and its various forms, in particular within their environmental, social, and reputational (ESR) risk due diligence and their anti-money laundering (AML) transaction monitoring.

To keep up with this rapidly evolving regulatory landscape, visit the Policy Outlook. If you have any questions, please do not hesitate to contact us.

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