Awareness of the scale of modern slavery across the globe is rapidly increasing. That includes the impact of this insidious crime right here in the UK. The International Labour Organisation (a UN agency) estimates that over 40 million people worldwide are currently in some form of modern slavery. The Global Slavery Index estimated that 136,000 people in the UK in 2016 were living in slavery.
The Modern Slavery Act requires all UK companies with turnover over £36 million to publicly report on what they are doing to ensure that their supply chain is free from modern slavery. However, at the end of the first year of implementation, Britain’s Anti-Slavery Commissioner commented that he was ‘disappointed’ with the quality of disclosures, many of which failed to reach minimum standards.
Though currently there is no direct enforcement regime and no penalties for non-compliance, this will almost certainly change in light of the strong public and Parliamentary interest. Equally there is no formal assessment of the adequacy (or otherwise) of the efforts disclosed. However, with increasing focus on Environmental, Social and Governance (ESG) reporting, companies should be considering how they respond.
What is modern slavery?
The UK’s Modern Slavery Act 2015 covers slavery, servitude, forced labour and human trafficking – essentially the exploitation of another person for personal or commercial gain. Although modern slavery is relatively new terminology, these crimes are not new.
It is worth briefly noting that while one may lead to the other, modern slavery and human trafficking are not the same as organised immigration crime or people smuggling; the latter pertains to illegal border crossings only and does not include the exploitation of a person. This relates to situations such as migrants willingly paying criminal gangs for passage out of countries such as Syria and Afghanistan into Europe, where the migrants are seeking a better life and do not end up being exploited by the smugglers.
But what does that really look like, in human terms?
In responding to this question you could turn to a plethora of spine-chilling examples. The most well known in the UK is perhaps ‘Operation Fort’, an investigation led by the West Midlands Police, which uncovered the largest modern slavery network in the UK. The investigation resulted in the conviction of eight individuals, described as members or associates of two Polish crime families. The exact number of victims is unknown, but estimates are of around 400 people over a period of some five years. The modus operandi of the criminals was to recruit the most vulnerable from society in Poland, those who were homeless or just released from prison. With promises of work and opportunities awaiting them in the UK (and under pressure of limited time to accept the ‘offer’), individuals were lured onto coaches heading from Warsaw to the UK. Once they arrived, however, the picture was very different.
The gang now told the new recruits that they had built up a debt for the transport to the UK, which needed to be repaid. In addition they owed money for accommodation which was being provided for them. These excuses were provided to justify gang members taking control of the recruits’ new salary. The Polish men, often with limited knowledge of English, were taken to employment agencies and banks and made to sign paperwork that they often didn’t understand, giving the criminals complete control of their wages. They were forced to work in farms, factories and waste plants and were given as little as £20 a week by the gang. Their products formed part of the supply chain for some of the UK’s most well known retailers. This vicious cycle left the victims perversely reliant on the criminals exploiting them. Anyone who complained was humiliated or threatened to remain compliant. As for the accommodation? Men were made to share small houses sleeping 4-5 to a room, on dirty mattresses and sometimes without heating or even running water – circumstances far from the ‘better life’ which they had been promised.
This is not an isolated example. Shocking stories are increasingly hitting headlines, and prompting greater awareness of the issues at least for those retailers who had been caught out with forced labour in their supply chains. A big story reported in 2020, was when an undercover investigation by The Sunday Times identified garment factories in Leicester which were paying workers just £3.50 an hour, against a minimum wage of over £8. The report caused a media storm and sent Boohoo’s share price tumbling. This story appeared to have a much greater impact on consumers, although a report from the Financial Times two years earlier had reported the same shocking findings. That report found that labour exploitation in Leicester’s garment industry was a well-known problem… that no one was addressing.
These factories were supplying ‘fast fashion’ retailers such as Boohoo. The demand for cheap clothing at speed had meant retailers turned to manufacturers in the UK to minimise lead times. But retailers did not want to pay a higher price just because the goods were manufactured on-shore and they forced manufacturers to keep costs low by playing them off against each other, with the result that workers suffered. Not only were staff underpaid, with no holiday or sick pay allowance, but also the buildings were overfull and unsafe, with old machines, big piles of fabric and blocked fire exits. The situation was exacerbated by the outbreak of the Covid pandemic, when staff were forced to continue working in breach of social distancing guidelines.
Allegations of modern slavery in this context were widely reported and prompted Boohoo to commission an independent investigation by Alison Levitt QC. Although the report found the allegations of poor working conditions to be substantially true, it did not consider Boohoo to have committed any criminal offences, merely noting poor governance over suppliers. The NCA in July 2020 confirmed that it was assessing allegations of modern slavery in the textile industry in Leicester. It was reported in 2021 that US Customs and Border Protection were investigating the allegations of modern slavery in the Boohoo supply chain. If the allegations are deemed substantiated, the body is empowered to instruct US ports not to release Boohoo product.
What should companies be doing?
Companies should be anticipating changes and setting themselves up with robust compliance programmes that demonstrate commitment to ethical practises, through top level commitment, adequate resourcing and staff training. Risk assessment of the supply chain is vital, as is robust due diligence and ongoing monitoring, including implementing means to detect warning signs from transactional and customer data.
Red flags that companies should be alert to include companies whose accounts show unusually low payroll expenses (for the size of the company), unexplained transfers to jurisdictions with higher risk for human trafficking or off-shore payment requests. Company accounts that include ‘sustenance’ type expenses (accommodation or food expenses for example) should also be reviewed. Financial Institutions are increasingly vulnerable to modern slavery risks when providing banking services to those involved in modern slavery and must now also scan for red flags such as multiple bank accounts set up with the same address, contact or employment details. Branch staff should be trained to identify individuals who appear to be controlled by another person.
Consumer awareness of modern slavery issues has increased considerably with these and other ethical issues now central to buying decisions, customer trust and thus enterprise value. Whilst we may have to wait for a formal enforcement regime to emerge, it is clear that modern slavery is firmly established as a key element within the ‘S’ of ESG meaning that the indirect effects of failing to proactively manage risk will lead to heavy indirect penalties through reputational harm and erosion of share price.