The exploitation of people - whether their efforts are provided by debt bondage, under threat of violence, psychologically, by imprisonment or deceiving the poor and desperate - is well-documented in most industries where unskilled labor is used. As the Nestle catfood case recently highlighted, these activities are not relegated to rural villages far away from modernity. Exploitation underpins many aspects of the average modern consumables, such as seafood, electronics, textiles, extraction, entertainment, construction and agriculture. These are global industries raising their capital through listed companies on stock markets, through asset managers and investment banks, running their daily operations through hundreds of subsidiaries and via business relationships with other parties across borders and oceans until it ends with forced labor. The proceeds from this exploitation are realized and distributed, supply chains move the products, and money is banked, remitted and reinvested.
Money is at the center of human trafficking. In 2014, the International Labour Organisation estimated that modern slavery in the private economy generates US$150 billion in illegal profits per year. Profit is the desired result of exploitation, directly in cash taken or indirectly in revenues from saleable goods and services. Products made by those trapped in modern slavery, e.g. clothing, fishing, minerals, electronic goods, are sold into legitimate markets to be purchased by consumers like us, and so ultimately payments and sales are transacted using the services of the legitimate financial industry. This puts financial institutions at the center of the fight.
Building a criminal network to exploit people and to produce goods and services for the legitimate market absolutely requires an appearance of legitimacy if it is to continue. Licenses and permits to operate must be obtained, payroll must be recorded fraudulently and people who are recruited and transported must be controlled. Sustaining the network requires the creation of a malicious environment where the rule of law easily fails, money can enter and leave without detection, information can be controlled, geography can be used without fear of disruption but all the while the appearance of lawfulness is generally maintained. But everyday cash must remitted, paid, invested and held, large amounts within legitimate financial channels. Maintaining such a criminal network requires bribery and money laundering and it is these activities that interest those in financial institutions who are tasked with controlling and monitoring the movement of money.
The fishing industry offers an example of the co-existence of numerous such networks - parties charter and own fishing vessels, recruitment agencies lure men for crew, other larger vessels provide support to collect catches, onshore processing plants handle the fish, then there is product transportation and distribution to companies involved in retail point of sale whether as fish for humans or for pets. All these activities need financial institutions, of many types, to transact payments from the chartering of vessels to the purchase of cans of petfood. On the ground level, most of the players are tacitly coordinating the network of crimes to collectively obfuscate the exploitation. In 2013, a Taiwanese owned Cambodian recruitment agency, Giant Ocean, was found to work with companies in multiple other countries to send men to vessels all around the world, effectively trafficking the men into situation of abuse with no payment and no escape. Allegedly, companies and banks in Singapore and South Korea were also entangled in the web of exploitation. The court conviction was a moment of rare judicial justice for the anti-trafficking community, but it also offered a peek into the extent of international coordination needed across various institutions for those hundreds of men to become victims.
To disrupt a network as extensive and efficient, it requires a rival network that is equally effective and wide reaching. Few enforcement measures ever have such teeth, due the jurisdictional limits under which law enforcement were historically set up, but the global effort in anti-corruption and anti-money laundering is a new exception. In the last fifteen years, financial institutions under obligations of anti-money laundering laws, such as provisions of the Patriot Act, which require know-your-client, client due diligence procedures and much greater attention to beneficial ownership, have invested in hundreds of millions in risk control against exposure to corruption and money laundering. While that sounds like a large investment, consider that Transparency International estimates that corrupt officials earn approximately US$40billion per year, the World Bank puts the value of bribes per year at USD1trillion, at a cost of 5% of global GDP, it is appropriate and worthwhile. And under global reaching and local anti-corruption law, such as the Foreign Corrupt Practices Act (FCPA) and the UK Anti-Bribery Act, companies listed on US Exchange and doing business in the UK must under invest in anti-corruption internal controls and reporting.
HSBC's US$1billion fine for money laundering issues in Mexico and Siemens disgorgement of US$350million under the FCPA are two examples of why corporations are motivated to continue to develop compliance, risk and intelligence functions, and the custodial sentences handed to individual directors are reason enough for board members to support these functions.
People experienced and trained in risk, intelligence, compliance and law are joining boardrooms and management below and in a mere decade, a huge industry of risk control has developed to support these people in their efforts to prevent and identify corruption and money laundering in the industry. From a historical perspective of thousands of years of human commerce, the increase in oversight and control is almost overnight, yet it has already created a massive network throughout society, across borders, professions, disciplines and bureaucracies.
In one manifestation of this network connectivity, for the estimated 20,000 banks in the world, about a quarter of them use one database, Thomson Reuters World-Check, to check for criminals amongst their new and existing clients. When there's a match, a red flag, the bank must consider reporting it to financial law enforcement and hold any further transactions in relation to the account or decline a new account opening - it is truly disruptive to those counting on the speed of doing business to turn a profit. In the Giant Ocean case, one of the first worked on with a partner NGO involved in the court case, the traffickers' names, aliases, and connections not reported in the broader media were shared to World-Check. A significant feat considering that while the case was a judicial victory in Cambodia, five of the six convicted traffickers were sentenced in absentia, as they were Taiwanese nationals who escaped the country to presumably do the same work elsewhere. Now they will find it harder to use and abuse the financial sector for the same illicit gains wherever they are. Before this flow of information between civil society and the finance sector had been established, the justice obtained by civil society would have been largely symbolic, but now that same painstaking NGO work can also carry with it the teeth of the modern financial regulation machinery. In the last few months, civil society has helped add about 1500 individuals and companies to that database who have convictions relating to human trafficking and slavery activities. This flow of information changes the tide of the anti-trafficking movement from confined to the human rights arena to suddenly relevant to the financial crimes world.
In essence, there is now a newly growing network of people gathering information about slavery activities from the ground level, providing it to analysts who then distribute the information, through technology, to those in financial organisations who control and are obliged to stop the flow of monies funding and arising from global modern slavery. Gen. Stanley McChrystal said, "it takes a network to defeat a network." Finally, there is a network to rival that of the exploiters, by joining the forces of financial institutions, civil society, technology companies, corporate service providers, and regulators.
Duncan Jepson is the founder of Liberty Asia, which prevents human trafficking through legal development, technological interventions, and strategic collaborations with NGOs, corporations, and financial institutions in Asia. Liberty Asia and the Freedom Fund recently published a report "Modern Slavery and Corruption", available here.