Introducing the Liechtenstein Initiative’s “Blueprint for Mobilizing Finance Against Slavery and Trafficking”
Two centuries ago, Financial Services Actors (FSAs) have played a crucial role in both enabling and ending slavery. Transatlantic slave trade could not have existed without the support of the financial sector, as it was very capital- and credit-intensive. FSAs had developed many instruments such as securitized slave-backed mortgages, from which they made a lot of money. However, the sector’s role changed drastically from perpetuating to helping end slavery when in 1833 the British government opted to emancipate thousands of slaves. A financial syndicate provided the largest syndicated loan at the time, GBP 20 million in slave owner compensation, to the state.
Today, again, the financial sector is crucial in the fight against modern slavery and human trafficking (slavery and trafficking). The United Nations’ Sustainable Development Goals’ (SDGs) Target 8.7 states that “immediate and effective measures (should be taken) to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour (…).” The Liechtenstein Initiative’s 2019 blueprint “A Blueprint for Mobilizing Finance Against Slavery and Trafficking” defines five goals and showcases how FSAs can contribute to help eradicating modern slavery and trafficking. Each goal comes with three actions that can be taken now and three actions which can be initiated now but may have longer gestation.
Goal 1: Compliance with Laws Against Modern Slavery and Human Trafficking
Firstly, the blueprint suggests that FSAs can help detecting slavery and trafficking by adjusting their internal screening processes to slavery and trafficking risks. FSAs already perform a number of crucial monitoring and screening activities. By expanding anti-money laundering (AML) and countering the financing of terrorism (CFT) typologies, transaction-monitoring and client screenings can be used to detect activity that may point to slavery or trafficking. There are numerous sources for the relevant indicators enabling such extension, e.g. here.
Also, the report proposes integrating slavery and trafficking factors systematically to customer due diligence processes, for example through template questions aiming at exploring the customer’s exposure to slavery and trafficking risks.
Goal 2: Knowing and Showing Modern Slavery and Human Trafficking Risks
The Blueprint emphasizes that FSAs can help improve market information and transparency, making capital more expensive for entities connected to the risk of slavery and trafficking. This requires FSAs and other enterprises to perform effective due diligences on their business relationships. Of course, most FSAs already do so. However, limited insight into the supply chains of companies that they invest in or whose securities they trade can make increasing effectiveness of these processes challenging. A good starting point is the FAST Connection Diagnostic Tool, which can be used to support FSAs to identify slavery and trafficking risks in their own operations and business relationships. The tool also comes with recommendations on what to do about identified possible connections.
The focus of the due diligence should be based on risks to people, not risks to the company. According to the blueprint, in order to translate them into pricing signals, the findings need to be disclosed under supply-chain transparency regimes (e.g. California Transparency in Supply Chains Act, UK Modern Slavery Act), which we expect to multiply within the coming years.
Goal 3: Using Leverage Creatively to Mitigate and Address Modern Slavery and Human Trafficking
Once the areas of risk have been identified (and potentially disclosed), the Report suggests FSAs need to ask themselves how they should address them. What distinguishes finance from other businesses is that it has enormous influence over the global economy. This is particularly true for public actors whose assets are worth almost half of the global economy’s value. The authors of the blueprint point out that “the force of finance lies in its ability to act as a lever by which the systematic performance of the entire global economy can be moved”. This leverage could be used as early as during negotiations with potential business partners, in which FSAs could indicate that they may end the relationship if slavery or trafficking risks are detected but not addressed appropriately. This will help maximizing leverage over the course of the relationship.
Once a business relationship has been entered into, using leverage to encourage business partners, such as investees or clients, to take steps against slavery and trafficking, requires creative approaches. Obviously, there is no universal recipe. However, the “Leverage Practice Matrix” provides illustrative examples on how different types of leverage can be used creatively by different FMAs to mitigate and address slavery and trafficking across different sub-sectors. For example, the London Stock Exchange Group incorporates strict anti-slavery and anti-trafficking clauses into their supplier contracts.
Goal 4: Providing and Enabling Effective Remedy for Modern Slavery and Human Trafficking Harms
Where violations have occurred, responding appropriately is key. Often, slavery and trafficking victims are deprived of effective remedy, including compensation. Where they cause or contribute to such harm themselves, FSAs are expected to provide effective remedy to the victims. Many FSAs do so voluntarily as they acknowledge the general principles of compensation law. This is crucial as compensation is also a preventive measure. Non-access to remedy increases the risk of re-victimization.
Where they have not caused or contributed to the harm, FSAs are of course not expected by law to provide remedy themselves. The Report recommends that they should, however, actively cooperate with the judiciary, state-based non-judicial remedies (e.g. OECD National Contact Points) and non-state grievance mechanisms to enable remedies. In the case of judicial proceedings, where legally possible this can be done through quick asset freezing, confiscation and facilitation of financial investigations, which may bring to light evidence for slavery or trafficking, enabling victims to claim compensation.
Goal 5: Investment in Innovation for Prevention
Of course, it would be best to prevent vulnerable populations from getting into situations which may lead to slavery or trafficking. The blueprint suggests that this presupposes giving them access to basic financial services, especially credit. Lack of access to such is a key driver for both slavery and trafficking, primarily because the individuals’ inability to withstand financial shocks forces them into dangerous labor contracts, which are a road to slavery and trafficking. The FAST Initiative plans addressing this problem by introducing the “Vulnerable Populations Initiative“, a program aimed at developing new financial products and services for the highly vulnerable (e.g. blockchain-based microinsurance for rural smallholder farmers), in late 2019 and into 2020.
Furthermore, the financial identity of trafficking victims is often hijacked for money laundering purposes. In order to re-integrate these persons into the formal financial system, the “Survivor Inclusion Initiative” has been introduced in Austria, Canada, UK and the US. It will later be expanded to other jurisdictions. Currently, twelve banks are participating in this initiative, amongst whom are Bank of America, Barclays, Citi, HSBC and Scotiabank.
According to the Liechtenstein Initiative’s report, sharing information and experience on all of these processes amongst FSAs is crucial. Due diligence can be made more effective where FSAs have access to findings of other FSAs.
In light of its key position in the global economy, the financial industry will soon find itself even more in the center of the discussion on how to on the one hand protect itself from the risks and on the other hand expectations regarding contributing to ending modern slavery and trafficking. As often in the compliance sphere collaboration is key. Sharing information and experience amongst players in all sectors, including governments and NGOs, is crucial to enable FSAs to conduct effective due diligence and put in place appropriate compliance measures, enabling them to find their role within collective anti-slavery and anti-trafficking efforts and avoiding an unbearable burden on them