The reality of modern slavery and human trafficking cannot be ignored

The 2021 Global Estimates of Modern Slavery reports that 50 million people are now thought to be in some form of modern slavery, an increase of c.25% since 2016. The COVID-19 pandemic, environmental crises, and economic struggles have all contributed to global disruption in employment, industry, and education, creating an environment in which many forms of modern slavery can thrive. With human rights and the ESG agenda continuing to be at the forefront of the corporate crime debate, and an increasing number of jurisdictions passing legislation concerning modern slavery and human trafficking (“MSHT”), the expectation on organisations to actively identify and address these risks will continue to grow.

Political instability and conflict across jurisdictions which are rich in energy and natural resources have also forced those in the industry to adapt and reassess who they do business with. Not reacting to these changes can have significant legal, commercial, and reputational consequences.

Case Study: Myanmar 

Since the Myanmar military seized power in February 2021 there has been rapid economic and social destabilisation. The UN has stated that the country is in a state of humanitarian crisis, with the alleged murder of c.2,000 people and detainment of c.14,000 by the military junta constituting crimes against humanity¹.

At the same time, Myanmar is a huge producer of raw energy materials, with natural gas revenues accounting for approximately 50% of their foreign currency. Since the coup in 2021, Myanmar has suffered a significant loss in energy partners and investments, with several citing the worsening human rights situation. It was revealed that profits derived from various energy projects could have reached the military junta, thus indirectly contributing to the atrocities being carried out in the region.

This highlights the need for energy and commodities trading organisations to have robust controls and due diligence procedures in place which incorporate MSHT risk, and adequate measures around both the source and flow of funds within projects and ventures.

In our last blog, we looked at some of the challenges that energy and commodities trading organisations face when considering MSHT risk. Here we will explore how organisations can take action to manage those risks and meet their legal and regulatory obligations.

What can companies do to identify, mitigate, and manage MSHT risk?

When trying to tackle an issue as large and complex as MSHT in the supply chain, it can be difficult to know where to begin. We’ve outlined the key steps organisations should consider taking to tackle MSHT risk effectively.

• Risk Assessment: There are many factors which contribute to the identification of MSHT risk, including: industry and sector; operational jurisdictions; and size and scale of the business. Organisations should conduct a thorough risk assessment to identify their inherent risks, understand how effective their current controls are, and assess the residual risk. This will enable them to identify where to make improvements and mitigate risks to an acceptable level. As noted in our recent blog on modern slavery risk in financial services, MSHT risk has increased post-pandemic, and companies need to consider recent changes around reporting, and increasing rates of prosecution for modern slavery offences, in their risk assessments.
  
  For example, in the commercial maritime industry, ship crews or freight operations personnel may be exposed to potential risks such as a higher risk of working excessive hours with no rest periods, unsanitary living and working conditions, or even abandonment². This is in part due to the underlying nature of their activities, where often they are located at sea or active in jurisdictions with weaker MSHT protections. The risks differ significantly to those trading petroleum or other refined products in an office-based environment, where the origin and end-to-end supply chain of their product would require a greater focus.

• Develop, enhance, and embed policies and procedures tailored to the risk of MSHT: Organisations should ensure that legislative requirements regarding MSHT are identified, captured, and maintained in policy documentation. There should be clear procedural guidance on how to comply with relevant obligations and execute preventative measures.
  
  In addition, organisations should look to ensure that they have documented and effective processes and controls in place to proactively identify and mitigate MSHT risk. This provides a clear record against which members of the Board can demonstrate the steps being taken to address MSHT in their supply chains in their annual MSHT statement.

• Undertake appropriate due diligence, third party reviews and investigations: Conducting appropriate due diligence is essential to managing MSHT risk in the supply chain. Organisations should routinely monitor and assess their counterparties, assets, and supply chains to identify key areas of exposure within their operations. Incidents or threats of MSHT identified should be managed with appropriate action which could include:
  • Liaising with counterparties to understand the severity of the issue, the corrective measures they intend to put in place and the associated timelines.
  • Re-assessing whether a counterparty relationship remains within the organisation’s risk appetite
  • Determining whether raising a suspicious activity report is appropriate (as MSHT is a predicate crime to money laundering).
• Training and awareness: It is imperative that employees understand what MSHT means, the impact it has on individuals, and the consequences it can have on organisations when they fail to take, or are unable to demonstrate that they took, appropriate preventative measures. Investing in quality training and awareness for all employees should be at the forefront of a good risk mitigation framework. Organisations can also work together through industry working groups and forums to facilitate training, share intelligence and typologies, and examine risk factors with the collective ambition to reduce and mitigate instances of modern slavery. When it comes to modern slavery and human trafficking, transparency of information is crucial in tackling the issue.

What Deloitte are doing to help

Deloitte is supporting its clients with a range of MSHT activities and initiatives including undertaking risk assessments, policy and control enhancement and implementation, and assisting in delivering on reporting and annual statement obligations. We continue to help clients meet their regulatory requirements, provide them with a granular understanding of MSHT risk, and manage their overall financial crime risk portfolio.

If you would like to discuss this topic further, please contact Yamina Bheekhun, Aisling Kermath or Stephanie Slee.

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[1] Thomas H Andrews, United Nations Human Rights Office of the High Commissioner Press release: Myanmar (ohchr.org)

[2] Some Oil-Shipping Rigs Are 'Blatant' Examples of 'Modern Day Slavery' (businessinsider.com)
Abandonment of seafarers set to reach record levels in 2022 (nautilusint.org)