Policy Outlook

Child Labor, Forced Labor, Human Trafficking, and Modern Slavery: An Overview of the Regulatory Landscape for Financial Institutions

According to international organizations, there are currently 152 million victims of child labor and 40.3 million victims of modern slavery, which together would be the 8th most populous country in the world. Efforts to eradicate child labor, forced labor, human trafficking, and modern slavery are among the top priorities outlined in UN Sustainable Development Goal number 8.

In economic terms, it is estimated that earnings derived from modern slavery practices amount to USD 150 billion dollars every year—that is more than the gross domestic product of Kuwait or the estimated wealth of Jeff Bezos, the world richest person. A new wave of regulatory developments seeking to eradicate these illegal practices started in the 2010s.

Policy Outlook research has identified more than 40 regulatory frameworks addressing these topics that are relevant to financial institutions. A key feature of this regulatory momentum is that companies, including financial institutions, are targeted by regulatory expectations. These frameworks complement the previously established personal criminal liability for individuals involved with child labor, forced labor, human trafficking, and modern slavery. Recent developments related to child labor, forced labor, human trafficking, and modern slavery at the law-making and enforcement levels have contributed to the topics regaining the general public’s attention.

The fact that regulators are increasingly engaging the private sector in the efforts to eradicate these practices is impacting the financial sector in a number of ways. Financial institutions should be aware of these issues and their various forms, for example within their environmental, social, and reputational (ESR) risk due diligence and their anti-money laundering (AML) transaction monitoring.

The following sections further outline key initiatives on forced labor, human trafficking, and modern slavery, both international and country-specific, as well as links to resources and tools that are of interest to the financial sector.

This blog post aims to provide an overview of the current major climate-related financial regulation trends and insights on what the future may hold in this regard.

1. Key initiative/platform

The Finance Against Slavery and Trafficking (FAST) initiative is the key international platform for the financial sector addressing issues related to forced labor, human trafficking, and modern slavery. It derives from the work done by the Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking, which concluded its work with the publication of Unlocking Potential: A Blueprint for Mobilizing Finance Against Slavery and Trafficking (Blueprint).

The Blueprint sets out five goals for financial sector actors to work towards through individual and collective action to contribute to the end of slavery and human trafficking. FAST is now responsible for supporting the implementation of the Blueprint. A group of financial institutions, including Bank of America, Barclays, Citi, HSBC, and Wells Fargo, are cooperating with FAST to support survivors of modern slavery and human trafficking access financial services.

2. Key regulatory trends

The regulatory landscape for companies, including financial institutions, when it comes to child labor, forced labor, human trafficking, and modern slavery follows two major approaches.

Specific regulatory frameworks addressing child labor, forced labor, human trafficking, and modern slavery have been adopted across the globe since the beginning of the 2010s. These frameworks are generally aligned with one of two primary approaches:

  • Emphasize disclosure obligations by following the model introduced by the 2015 UK Modern Slavery Act, which requires entities to publish an annual slavery and human trafficking statement. This approach has been followed in several jurisdictions, such as in AustraliaCanadaHong HonkNorway, and in the United States.
  • Focus on due diligence processes related to the provision of products and services. In this context, there are two key examples: (i) the Dutch Child Labor Due Diligence Law which is applicable to entities selling goods and services to Dutch end-users. These companies will be required to determine whether child labor is present in their supply chains and if so, design and implement action plans; and (ii) the 2010 Brazilian Central Bank Resolution on Slave Labor, which prohibits financial institutions from having business relationships with entities listed in the Ministry of Economy’s registry of employers who have engaged in slave-like working conditions (commonly referred as “Dirty List”).

Another major regulatory approach when it comes to corporate action related to child labor, forced labor, human trafficking, and modern slavery is via generic regulatory frameworks. These frameworks encompass a broad range of corporate responsibility issues under the umbrella of mandatory environmental and human rights due diligence and include, for example, the French Law Regarding the Duty of Vigilance of Parent and Subcontracting Companies and the draft German Act on Mandatory Human Rights and Environmental Due Diligence, and the proposed Swiss Responsible Business Initiative.

3. Key enforcement developments

Ministério Público do Trabalho v. Banco da Amazônia SA: In August 2019, the decision of a Brazilian judge was published at the level of a preliminary injunction which for the first time established penalties in relation to the Brazilian Central Bank Resolution on Slave Labor. In the decision, the judge affirmed that the case presented sufficient evidence to establish that Banco da Amazônia violated the obligations established in the Brazilian Central Bank Resolution on Slave Labor, in particular the prohibition from entering into business relationships (e.g. by providing or renewing financial resources or securities) with any legal or natural person on the Dirty List. The judge determined, among other pecuniary penalties, that Banco da Amazônia must pay BRL 200,000 as a compensation for collective moral damages.

Antuzis & Ors v. DJ Houghton Catching Services Ltd & Ors: The UK High Court of Justice issued a decision in April 2019 in a case in which the claimants were employed under exploitative conditions (which according to certain definitions could amount to modern slavery). In the decision, the court clarified a law related to a company director’s personal liability. It was established that a company director can be held personally liable in cases of exploitative working practices.

US Customs and Border Protection practice under Section 307 of the Tariff Act of 1930: The Trade Facilitation and Trade Enforcement Act of 2015 enhanced the US Customs and Border Protection’s ability to halt the entrance of goods produced by forced labor into the USA. For example, in 2019, the US Customs and Border Protection issued Withhold Release Orders prohibiting the entrance diamonds, garments, gold, and tobacco produced with forced labor.

4. Key resources/tools

Risk Mapping Starter Workflow: Helps financial market players begin to think about how to identify modern slavery and human trafficking risks in their own operations or business relationships.

Connection Diagnostic Tool: Provides initial insights on how to understand identified connections to modern slavery and human trafficking, and the expectations for financial market players’ response.

Financial Investigations Tool: Guidance on good practice in conducting financial investigations into modern slavery and human trafficking. This tool was produced in partnership with the Organization for Security and Co-operation in Europe.

Leverage Typology Matrix: Presents case studies on how the financial sector has recently exercised six different types of leverage, illustrating creative uses of leverage.

Global Data Hub on Human Trafficking: The first global data hub on human trafficking, publishing harmonized data from counter-trafficking organizations around the world.

Responsible Sourcing Tool: Maintained by the US State Department, it seeks to support the visualization and understanding of risks of human trafficking in supply chains as well as the mechanisms to implement effective management systems to detect, prevent, and combat trafficking.

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