Human trafficking may not seem like a subject that CFOs and other finance professionals need to address, but the unfortunate fact is that it’s a risk that has infected many companies’ supply chains, most commonly in the form of forced or underpaid sweatshop labor or child labor. Even if your own organization doesn’t have bad actors who have engaged in human trafficking directly, there may be some who have committed illicit acts commonly tied to human trafficking, such as money laundering, corruption, and fraud.
Implementing a robust anti-human-trafficking program that extends beyond internal vigilance to scrutinize business partners, clients, service providers, and suppliers for potential violations, blind spots, or vulnerabilities can help ethical companies to fulfill compliance mandates and corporate social responsibility (CSR) objectives.
In January 2020, Deloitte conducted a poll of professionals at organizations that already have anti-human-trafficking programs or were planning to launch such programs sometime this year. The survey found that among respondents at organizations with existing programs:
- 28.5% said their programs were “stronger than industry standard,” while 6.2% reported “weaker than industry standard” programs;
- 42.3% use advanced technologies such as AI and cognitive computing to monitor transactions for possible ties to human trafficking; and
- 47.1% conduct ongoing due diligence on new and existing third-party vendors or suppliers to detect and prevent engagement with human traffickers.
Among respondents at organizations planning to launch, or in the process of launching, an anti-human-trafficking program by January 2021, only 26.4% plan to leverage advanced technologies for anti-trafficking transaction monitoring. Even fewer—18.4%—conduct ongoing due diligence on new and existing third-party vendors or suppliers to detect and prevent engagement with human traffickers.
Deloitte found that 18.1% of respondents said the CFO is taking the lead on launching anti-human-trafficking efforts. Just 5.7% of respondents at organizations with established anti-trafficking programs said CFOs led them. That said, CFOs have an important role to play in oversight of such programs, as various financial crimes are often associated with human trafficking.
Don Fancher, the U.S. and global forensic leader at Deloitte, noted that human trafficking is an illicit activity that’s fast-growing and tough to detect because it’s clandestine.
“Human trafficking is an emerging issue that’s starting to get more awareness and becoming more important to clients, regulators, and government entities, but it’s still in the shadows relative to other concerns and crimes,” Fancher said. “The impact of human trafficking is broad—it’s a $150 billion industry controlled by organized crime, plus some state-owned activities, e.g., drug trafficking, prostitution, and money laundering.
“It isn’t seen as having a direct impact on an organization, such as sanctions or fines, but more corporations are starting to have an understanding of the importance of general social responsibility, and that’s beginning to drive a greater level of awareness of the need to counteract human trafficking,” he said.
The good news is that many organizations are collecting more and better data than ever before that can help to cast a light on these crimes. As technologies improve, Fancher said that the global business community can be invaluable in helping to fight human trafficking by taking a closer look at financial data with more advanced technologies—and by conducting deeper due diligence on the third parties with which it transacts.
Fancher said companies that invest in technology, prioritize the enterprise-wide detection of these crimes, and are diligent in their corporate financial crime-fighting efforts can help to raise the bar higher on their anti-trafficking program.
There’s a lot more that organizations can do, however, including training employees to make them more aware of human trafficking, establishing better controls, and conducting more in-depth assessment of the company’s supply chain and third-party vendors. What types of issues or red flags should an anti-human-trafficking program scrutinize? It’s broad.
Fancher said, “Certain manufacturers have been negatively impacted because they’re using sweatshops in India, China, or elsewhere populated by human trafficking through slavery—there’s absolutely a cost component to that.”
The financial services industry has been dealing with this issue for decades because companies are required to review suspicious financial activity for potential violations and monitor it on a regular basis under know your customer/client (KYC) and anti-money laundering (AML) regulations. Fancher suggests companies consider similar protocols to combat human trafficking.
Fancher said, “Identifying through analytics those suspicious types of financial transactions that might indicate some form of illegal activity, you may need to perform an investigation and bring this to the attention of leadership.… In order for the finance team to be successful, training must be done in conjunction with other parts of the organization,” he said.
Good supply chain management requires due diligence on vendors, service providers, partners, and customers, from their social media presence to financial transaction activity. A key is understanding that a veil of legitimacy can conceal illicit activities, including underpaid workers secured via human trafficking.
CSR is becoming an increasingly important factor in evaluating companies. CEOs and CFOs are being held to greater levels of responsibility beyond profitability and pleasing shareholders. And from a professional ethics perspective, everyone has a responsibility to be on the lookout for illicit activity and ensure that their organization is operating in an ethical manner. Consider customers, the people impacted by human trafficking, business partners, and the employees of the organization.
Fancher said, “Organized crime may be laundering money, making fraudulent payments, using credit cards and information that’s not their own, identity theft…that can have an impact not only on the organization but also the society as a whole, so there’s an ethical impact to consider.”
IMA ETHICS HELPLINE
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