Mobilizing the Financial Sector as Part of a Global Strategy to End Modern Slavery

20 November 2018
Policy Innovation

Modern slavery is a crime of economic opportunity that has a massive global footprint and generates over USD 150 billion in profits each year for traffickers. As the Global Fund to End Modern Slavery builds a coherent strategy to make modern slavery economically unprofitable with government, business and civil society partners, it is important to engage a group with the ability to take the fight straight to the traffickers: the financial sector.

The financial sector—from banks to investment funds to financial service providers—is a pillar of the global economy and a platform for all financial flows. As such, this sector could impact anti-slavery efforts in numerous ways. Directing even a fraction of the largest investment managers’ assets to companies with clean supply chains could gather momentum in addressing risk of forced labour in deep and opaque supply chains. Leveraging financial sector expertise could also have a reverberating impact on the use of innovative technology and partnerships to identify and disrupt illicit financial flows to traffickers. Furthermore, mobilizing networks of financial services across countries could provide financial solutions to those who have been financially excluded and trapped in forced labour. The recently launched Financial Sector Commission, for example, will explore how the financial sector can be used to detect and disrupt financial flows associated with modern slavery.


GFEMS CEO Jean Baderschneider at the launch of the Financial Sector Commission on Modern Slavery and Human Trafficking at the UN General Assembly.

Financial Sector Case for Action

The good news is that the case for the anti-trafficking field to engage the financial sector is clear, and the case for action by financial sector actors is also strong.

First, financial sector actors have a reputational incentive to act. Increased awareness and pressure from stakeholders including NGOs, consumers, governments and responsible investors have begun to demand financial products that are free of forced labour. Financial actors are increasingly expected to deliver slavery-free products to their clients.

Second, institutions have a financial incentive to be proactive. Investment managers can face fines if they do not exercise appropriate due diligence. Alabama’s Teachers Retirement System and Employees Retirement System, for example, were fined approximately $70 million for investing in a company with links to human trafficking. Banks and money service bureaus can also be sanctioned; Western Union, for example, received a $60 million fine for failing to address illicit money transfers that were linked to human trafficking. Proactive attention to due diligence in the short-term can generate cost savings in the long-term.

Addressing modern slavery does not only reap reputational benefits and cost savings. By being proactive in addressing modern slavery, financial institutions can generate active return on investment (alpha). While experts still debate whether Environmental, Social and Governance (ESG) benchmarks outperform traditional ones, a growing group of the largest investors fully integrate ESG factors (such as good working conditions) into their core investment processes as a fundamental driver of investment value.

Finally, by embracing an anti-slavery paradigm, financial institutions can expand into new markets and capture new sources of attractive risk-adjusted return. Financial institutions are currently missing opportunities to invest in innovative companies that generate market-oriented solutions to address modern slavery. They also miss the market potential of hundreds of thousands of migrants and survivors who need basic financial services.

Financial Sector Solutions

As part of a global coherent strategy to end modern slavery by making it economically unprofitable, GFEMS is focused on mobilizing the financial sector across four intervention streams:

Investment banks and asset managers can influence the supply chains of large corporates. These banks currently invest directly in large corporates whose supply chains are exposed to risks of forced labour. Current screening tools for forced labour risk are inadequate: they rely mainly on qualitative information, cannot attribute risk to a specific company and only audit Tier 1 suppliers. GFEMS aims to support the development of a forced labour screening tool that applies algorithms on quantitative datasets to predict the likelihood that a company’s supply chain uses forced labour. This tool could be used to engage financial institutions that may be exposed and co-create solutions to address forced labour risks identified.

Banks and money services bureaus can deploy anti-money laundering efforts to detect and prosecute traffickers. While the information and technology to identify illicit financial flows to traffickers exists, currently only 2 per cent of suspicious activity reports are related to human trafficking. New efforts to address this challenge are promising, including artificial intelligence-based tools developed and tested as part of the newly announced Traffik Analysis Hub to detect suspicious financial activity related to human trafficking. Other promising solutions include Financial Information Sharing Partnerships (FISPs) to improve coordination across financial institutions, Financial Intelligence Units (FIUs) and law enforcement, and refined anti-money laundering protocols to follow the money right to the traffickers.

Banks can provide basic financial services to vulnerable communities and trafficking survivors. Vulnerable communities and trafficking survivors often do not have access to basic financial services, which pushes them towards fraudulent informal schemes that can set them up for exploitation. Financial institutions can offer services that are preventive and/or rehabilitating, such as loans, savings accounts, insurance, refinancing and remittance assistance by proposing more affordable terms.

Venture capital-type funds can finance anti-slavery initiatives through early-stage companies. Many innovative solutions to reduce trafficking are generated by early-stage enterprises that fail to attract sufficient funding because they are not a match for traditional donors. An innovation fund to finance early-stage enterprises with creative anti-slavery solutions across sectors could be transformative. Humanity United’s early-stage venture fund Working Capital is one promising example of such a fund focused solely on solutions that support an ethical supply chain.

The financial sector has an opportunity to take a global leadership role in the effort to end modern slavery while still executing their fiduciary responsibilities and generating returns for stakeholders. Working alongside analytics providers, anti-trafficking NGOs, governments, companies and investors, financial sector engagement can be a game-changer.

This article has been prepared by GFEMS as a contributor to Delta 8.7. As provided for in the Terms and Conditions of Use of Delta 8.7, the opinions expressed in this article are those of the author and do not necessarily reflect those of UNU or its partners.

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