Modern slavery and the supply chain

Wednesday, 25 October 2017

Abraham Lincoln once said, “Whenever I hear anyone arguing for slavery, I feel a strong impulse to see it tried on him personally.”¹

Many of us are probably not aware that slavery still exists in the 21st century, or if we do, the extent of it.

Recent media coverage on the Bali Process Government and Business Government Forum held in August 2017 highlighted the plight of millions of people around the world who are the victims of modern slavery. Fortunately, the Forum also highlighted the push by a growing number of business leaders and governments to scrutinise supply chains to eliminate modern slavery. One of the key proponents in this movement is Australian mining magnate, Andrew Forrest, who ‘…declared (the) beginning of (the) end of modern slavery…’²

Whilst there are slavery-related offences contained within the Australian Criminal Code³, the Federal Government has also stated that it will introduce a Modern Slavery Act, like that introduced in the UK in 2015. This new Act would require large Australian companies to scrutinise their supply chains and report annually on measures they are taking to combat the various forms of modern slavery.

The UK Modern Slavery Act 2015⁴ is said by many to be a step in the right direction, but has also been criticised for lacking enough legislated protection for victims, a loophole where companies don’t have to report their overseas supply chains if the goods produced by those supply chains do not end up in the UK, and a lack of extraterritoriality for conduct that occurs overseas.⁵ Let’s hope the Australian Government considers these aspects when considering the implementation of our legislation.

What is modern slavery?

Someone is in slavery if they are:

• forced to work – through coercion, or mental or physical threat
• owned or controlled by an ‘employer’, through mental or physical abuse or threat of abuse;
• dehumanised, treated as a commodity or bought and sold as ‘property’
• physically constrained or have restrictions placed on their freedom of movement.^₆

Some of the most common forms of slavery are:

In practice, modern slavery can often involve a combination of these forms of exploitation. International Justice Mission (‘IJM’) and the Issara Institute have investigated the fishing industry in Thailand with funding from Walmart, which sources Thai seafood. They found that most migrant fishermen were not free to stop working for their boat captain. The fishermen owed money after being charged arbitrary fees for food or transport, their migration papers had been confiscated, or they feared physical violence from their employer. Over 90% were forced to work seven days per week even though the law requires at least one day of rest. Nearly as many were receiving less than the legal minimum wage.⁸

The International Labour Organization (‘ILO’) estimates that USD 150 billion in profits in the private economy are derived from forced labour.⁹ It also estimates that:

• 40.3 million people are in modern slavery across the world. Of these 24.9 million were in forced labour and 15.4 million were in forced marriage.¹⁰
• 28.7 million of the 40.3 million people in modern slavery circumstances (or 71%) are women and girls.¹¹
• 10 million children are in slavery across the world.¹²
• 25.0 million people are in modern slavery in the Asia-Pacific region (62%), mostly in bonded labour.¹³
• 16 million slavery people are victims of forced labour exploitation in the private sector (not including sexual exploitation).¹⁴ The average duration in forced labour exploitation was just over 20 months.¹⁵ The main industry sectors in which this is occurring are:
  • domestic work – 24%
  • construction – 18%
  • manufacturing – 15%
  • agriculture/fishing – 11%.¹⁶
• 4.8 million people are forced into sexual exploitation and women and girls accounted for 99% of all victims of forced sexual exploitation.¹⁷
• 4.1 million people in modern slavery are in State-imposed forced labour.¹⁸

It is also estimated that approximately 4,500 people in Australia find themselves in some form of slavery.¹⁹

These statistics make for sad reading. The fact that slavery is still occurring to such an extent diminishes us all. However, there is hope. Corporations, governments and NGO’s are collectively working together to eliminate modern slavery in its many forms.

The challenge for business

With increasing awareness of the issue, one of the key challenges for businesses that have extensive and complex supply chains is achieving sufficient transparency or visibility of what is actually happening in those supply chains.

It is highly likely that products we buy on a regular basis are produced by people in slavery. This may be occurring with the tacit approval of a corporation, or unwittingly due to supply chain complexity.

Other factors that may increase the likelihood of it occurring are where a corporation applies production pressure to a supplier. This may cause the supplier to sub-contract work to other suppliers who may not comply with the corporation’s standards and policies on this issue.

Increased pricing pressure on suppliers can also have the same effect. For example, research by IJM and others into forced labour in the Thai fishing industry found that one of the key pressures driving boat owners to resort to exploiting workers is narrowing profit margins and the inability to meet demand due to diminishing fish stocks. The pressure that companies further up the supply chain place on developing country suppliers affects modern slavery risks.
 

Links to corruption

When one understands the elements of and forms of modern slavery, the only conclusion that can be drawn is that its existence is due to greed and corruption.

Most victims of modern slavery come from impoverished backgrounds. They have limited opportunities for reasonable employment that might provide them with a decent standard of living. This makes them vulnerable to the unscrupulous, who prey on them with offers of work and working conditions that never materialise. Their enslavement contributes to the financial gain of their ‘employer’. For example, in Australia there are numerous examples of young immigrants being tricked into working for ‘massage therapy’ businesses where they are required to perform cheap sexual favours. They are told this is the ‘only way’ they can pay back their travel costs.²⁰

The United Nations Guiding Principles on Business and Human Rights (‘UN Guiding Principles’) represent international best practice with respect to addressing human rights risk in supply chains. The Australian Government has committed to these principles and is likely to base any Modern Slavery legislation on them.²¹
Whilst modern slavery in the supply chain may be a difficult issue to identify and prevent, we would advocate that consideration of the UK Bribery Act 2010 adequate procedures guidance is a good starting point in dealing with the issue.

The six principles of the UK Bribery Act guidance are:

• Proportionate procedures (also reflected in UN Guiding Principle 16)
• Top level commitment (also reflected in UN Guiding Principle 16)
• Risk assessment (also reflected in UN Guiding Principle 18)
• Due diligence (also reflected in UN Guiding Principles 17 to 22)
• Communication (including training) (see commentary to UN Guiding Principle 16)
• Monitoring and review (also reflected in UN Guiding Principle 20).

Proportionate procedures

As with bribery, this means a corporation should clearly articulate an overarching policy and procedures that are proportionate to the risks. For issues like fraud, bribery and modern slavery, nothing less than a zero-tolerance stance is appropriate.

Written practical procedures about modern slavery in the supply chain that are accessible to all employees and suppliers should be implemented so that all concerned know how to prevent, detect and effectively deal with it.

Top level commitment

Reducing the likelihood of any risk from materialising starts with and is the responsibility of the Board and Senior Management. Leaders need to strongly articulate their commitment to a zero-tolerance stance.

In addition to articulating this stance, it needs to be reinforced with visible actions and behaviour. This might mean that key senior managers more regularly visit suppliers in higher risk locations to reiterate the company’s stance, ensuring that the issue is regularly subjected to internal audit processes and that an appropriate reporting mechanism is available to employees and suppliers.

Risk assessment

There is clear evidence that modern slavery, like corruption, is occurring all over the world, including in developed countries. As such, a risk-based approach should be adopted when engaging with suppliers, particularly in higher risk, foreign locations.

Given the possible financial and reputational fallout associated with being identified as a company that has suppliers who use, for example, child or bonded labour, a robust risk assessment should be conducted.

One of the first steps in such an assessment is to identify the geographical locations of your supply chain. Based on the statistics above, supply chains in the Asia-Pacific region would be high risk. However, to really gain a granular understanding of the risk in any region, a range of information should be considered. This would include consultation with local civil society organisations working in the communities where companies operate, speaking with industry-related groups or associations and government agencies, interviewing local employees and management, conducting supplier site visits and reviewing publicly available information.

Once the risk is better understood, appropriate steps can be taken to reduce the risk and the likelihood of it occurring. Given that business circumstances often change, including those of supply chain partners, this process needs to be undertaken on a regular basis.

Due diligence

Closely related to the risk assessment process, this process produces a better understanding of your new and current suppliers. Adequate inquiries about suppliers must be undertaken, not only to ascertain their financial stability and ability to provide the goods and services required, but also their integrity. This means ascertaining your suppliers’ involvement in activity that is unethical or criminal in nature, e.g. bribery, corruption, modern slavery and other types of conduct that would, by association, reflect poorly on your company.

In the case of new suppliers, due diligence will assist your decision about whether to engage with them in the first instance. In respect of existing suppliers, it will allow you to identify any emerging risks post engagement and enable remedial actions to be taken, where necessary.

If your suppliers use sub-contractors, this fact and the sub-contractors’ labour practices may not be immediately visible. This exposes your business to being an unwitting participant in modern slavery. Companies should explicitly aim to have awareness and transparency around risks beyond their first-tier suppliers. One positive practice from the textile, clothing and footwear industry is the use of standard provisions in supplier contracts requiring the disclosure of details about employment further down the supply chain. Going beyond first-tier suppliers is something that research shows companies are reluctant to do, but it is necessary for due diligence to be effective in identifying and addressing modern slavery.²²

Communication (including training)

One of the keys to dealing with any business risk issue is awareness. To produce the required behaviours and culture, a high level of awareness of the importance of the issue and its possible repercussions is important.

Communications on the issue, including suitable training, should be endorsed and supported by senior management and the board and provided to employees and suppliers on an ongoing basis.

After adequate due diligence is undertaken and a business relationship is formed, supply agreements or contracts should include clauses prohibiting modern slavery in any form and other criminal activity such as bribery. Other useful clauses might include the ability to provide training and communications to supplier employees and the right to access and inspect supplier sites and to access and review books and records.

Monitoring and review

The risks posed by modern slavery in the supply chain will change over time. For example, business expansion may require engaging new suppliers. Where this happens, it will most likely require changes to procedures to mitigate the risk that may ensue. Monitoring the activities of existing suppliers and carefully considering decisions that may impact the activity of suppliers will go a long way to reducing modern slavery risk in your supply chain.

Other factors that should be monitored and reviewed include legislative change, government policy changes, current industry best practices, and the adequacy of internal capabilities and expertise, particularly in procurement and buying teams.

Knowledge is power, so awareness of a wide range of factors that might impact modern slavery risk will enable proactive procedural improvements that will continue to mitigate that risk. The other benefit of ongoing monitoring of these factors is the identification of opportunities for business growth.

Other considerations

IJM Australia states that there are two further important principles to be considered. The first is the concept of ‘remedy’. The second is the principle of addressing rather than avoiding modern slavery when it is discovered.

In relation to the concept of ‘remedy’, businesses should have in place procedures to provide support to employees in their supply chains that have been the victims of modern slavery. This is one of the foundational ‘pillars’ of the UN Guiding Principles. The concept of remedy includes mechanisms that allow workers to communicate abuses to those further up the chain.

The principle of addressing modern slavery when it is discovered is based on the premise that many companies will find slavery in their supply chains if they look. The response (in accordance with UN Guiding Principle 19) should not necessarily be to withdraw from relationships or regions where modern slavery exists, but to try to use the company’s influence and leverage to eliminate slavery in those places. In IJM’s view, this should include partnering with civil society organisations working ‘on the ground’ at the bottom of company supply chains to help strengthen the public justice system’s response to modern slavery in those communities.
 

Conclusion

Corporations that adopt responsible business practices in respect of modern slavery and other areas of significant risk will achieve many desirable outcomes. These include protecting and enhancing their reputations and achieving corporate social responsibility objectives, one of which should be to reduce the incidence of modern slavery and the violation of basic human rights it represents.

As Abe Lincoln inferred, no person wants or deserves to be a victim of slavery.

Acknowledgements

The initial draft of this article was reviewed by IJM Australia. We thank IJM Australia for their deep insights into this significant issue, which greatly assisted us in compiling this article.

International Justice Mission Australia

www.ijm.org.au
1300 045 669 | [email protected]

International Justice Mission (IJM) is the world’s largest international anti-slavery organisation working in 17 countries across the developing world to combat modern day slavery, human trafficking, and other forms of violence against the poor by rescuing victims, restoring survivors, holding perpetrators accountable, and transforming broken public justice systems.

International Justice Mission Australia joins in this mission globally and in Australia works to grow the movement of Australians seeking justice for the poor. IJM seeks cross sector partnerships with Australian corporations who see the value of impact investing into justice systems that allows for an enabling environment to address modern slavery through supply chains.
 

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