ILO: Forced Labour Profits Soar: The Shortcomings of a Robust Legal Framework
The International Labour Organisation (‘ILO’) recently released a report that estimates the annual profits earned from forced labour amount to US$236 billion, increasing by 37% from the last study conducted by the ILO 10 years ago, in 2014. Beyond the staggering amount of profit, the report highlights how the profits of forced labour ‘touches virtually all parts of the private economy [1]’. The profits remain ever-growing despite positive and welcomed efforts in the developments of robust legal frameworks surrounding forced labour and modern slavery. This blog post reflects on how robust legal frameworks fall short, focusing on the recent passage of the Corporate Sustainability Due Diligence Directive (‘CSDDD’) by the European Union (‘EU’) and national modern slavery legislation.
The CSDDD and the Exclusion of Financial Institutions
The CSDDD is heralded as a watershed moment for human rights due diligence, as it introduces obligations for companies to conduct human rights and environmental due diligence with respect to companies’ operations. The CSDDD was recently passed by the European Council on 15 March 2024, after much anticipation. Despite the anticipation, the CSDDD fails to live up to its potential. One of the primary criticisms of the CSDDD is the notable exclusion of financial institutions from compliance with the Directive (at least temporarily [2]). In the context of the ILO report, this exclusion is significant, as the proceeds of forced labour do not exist and circulate in a vacuum outside of the formal economy – financial institutions are key actors in the circulation of such proceeds. Indeed, the exclusion of financial institutions was highly opposed by the United Nations Working Group on Business and Human Rights [3]. The same Working Group has recognised that beyond simply holding financial institutions accountable for dealing with the proceeds of forced labour, there is a symbolic effect of financial institutions meaningfully engaging with human rights due diligence – ‘financial actors have an unparalleled ability to influence companies and scale up the implementation of the [United Nations] Guiding Principles [on Business and Human Rights] [4]’.
Under-Utilisation of Legislation
Another instance of where legal frameworks fails to meet their intended goals is seen in modern slavery, anti-money laundering and proceeds of crime legislation at national and international levels. The intended effect of such legislation is to punish those who profit, or otherwise deal with money which comes from dubious sources. While such legislation is arguably well drafted, the utilisation of such legislation remains low across the jurisdictions in which such legislation is enacted. For example, the UK spearheaded the enactment of the Modern Slavery Act 2015. However, in 2021, there were only 93 prosecutions under the Act, resulting in 33 convictions [5]. The Modern Slavery Act 2015 also imposes reporting obligations for companies in the UK, but ‘there is mounting evidence that many companies have neglected to do so [6]’. Similarly, the US State Department Trafficking in Persons Report 2023 estimates that in 2022, there were over 15,000 prosecutions related to labour trafficking worldwide, but only about 5,577 convictions.
The connection between anti-money laundering legislation and modern slavery legislation and due diligence cannot be understated. These two categories of legislation, in theory, should sanction institutions and companies who receive proceeds or deal with proceeds of forced labour or modern slavery. While the low prosecution numbers are part of the problem, a neglected element of this nexus is victim compensation. Even if convictions are secured, compensation to the victim is often left to the discretion of the court. Alternatively, there are few examples of institutions meaningfully engaging with victim compensation outside the criminal justice context, with the 2020 ANZ-Cambodian sugar firm case [7] being perhaps the most recent. The Blueprint for Mobilizing Finance Against Slavery and Trafficking, published by Finance Against Slavery and Trafficking (‘FAST’) has pushed for a change to international anti-money laundering laws, to make it so that if a company or institutions knowingly benefits from human trafficking or forced labour, it would predicate a money laundering offence [8]. The FAST report argues that this, in turn, would close the gap between the billions being made in profit from human trafficking and forced labour and the meagre compensation given to victims and survivors [9].
Photo by Saad Salim on Unsplash
It is apparent that forced labour is, and will arguably continue to be, an issue that affects every aspect of modern life. The proceeds of forced labour are proceeds of crime, and it should not be an arduous task to treat the proceeds of forced labour as such. Similarly, it may be argued that the lack of real punishment and sanction of regulatory regimes dilutes the intentions and goals of human rights due diligence mechanisms. If companies and institutions can afford to get away with non-compliance or feigned ignorance, the use, and subsequent profits, of forced labour will continue. The lack of accountability (whether criminal or civil) incentivises companies and institutions to continue as ‘business as usual.’ Additionally, market conditions may make it so that even if a company wanted to divest from a supplier who may be using forced labour, the company is not in a position to break the relationship due to no other supplier being able to fulfil the role. This leaves the entirety of society at an impasse – workers continue being exploited, consumers want more transparency, and assurances and companies want to be responsive but maintain their bottom line.
There is no easy solution to these problems. However, it is worth being critical of the effectiveness of new mechanisms when the fundamental problem – i.e. that forced labour and its proceeds remain lucrative. Until forced labour is no longer economically viable, it will continue to unfortunately grow. US$236 billion is a staggering amount, and with it should come a reckoning of what is yet to be done.
Sources:
ILO, Profits and poverty: The economics of forced labour. Second edition, Geneva: International Labour Office, 2024.
ESG Investor, ‘Finance’s CSDDD Exclusion a “Missed Opportunity” on Human Rights by Jack Grogan-Fenn, 15 December 2023.
United Nations Human Rights Special Procedures, Statement by the United Nations Working Group on Business and Human Rights, 12 July 2023.
Ibid.
Hansard, House of Commons Debate, Human Trafficking and Modern Slavery, 29 March 2023.
International Bar Association, ‘UK Modern Slavery Act failings point to need for global action on slavery’ by Ruth Green.
Reuters, ‘Australia’s ANZ agrees payout to Cambodians locked in land dispute’ by Matt Blomberg, 27 February 2020 <https://www.reuters.com/article/idUSKCN20L1D2/>.
United Nations University CPR, ‘Targeting the International Anti-Money Laundering Regime to Address Human Trafficking and Forced Labour’ by Andy Shen, Loria-Mae Heywood, 20 November 2023.
Ibid.