The fight against modern slavery

USD 236 billion – this obscene amount is the annual profit generated from forced labor in the world these days, according to the International Labour Organization (ILO) in 2024. Much of that profit moves through the global financial system, underscoring the critical role of financial institutions in combating modern slavery. Effective due diligence and continuous monitoring are crucial in identifying possible red flags and ensuring that financial institutions do not inadvertently support related crimes. In this article, we explore how financial institutions can be connected to modern slavery and share practical guidance on actions they can take to help prevent and combat it.

ILO’s global estimates on modern slavery state that 50 million people were living in modern slavery in 2021, showing an increase of 25% compared to 2016. Although there is no agreed upon global definition of modern slavery, the term is used to encompass, among others, forced labor, sexual exploitation, forced marriage and human trafficking. The UN Guiding Principles on Business and Human Rights state that financial institutions have a responsibility to provide an effective remedy if they are causing harm related to modern slavery and that they have a responsibility to contribute to a remedy if they contributed to the harm.

Financial institutions – such as banks, credit unions, insurance companies and investment firms – play a critical role in combating modern slavery. Yet few have a proper understanding of how they can fulfil this role. The first step is understanding how they may be connected to modern slavery. This awareness is essential for identifying and mitigating the associated risks. These connections can be found both upstream and downstream. Upstream connections might include investing in funds that profit from modern slavery or trading with entities involved in trafficking. Downstream connections may involve providing loans, services or project financing for businesses entangled in illicit activities.

Analyzing client behavior and transaction patterns can reveal critical indicators of modern slavery. Most financial institutions already rely on rule-based and/or machine learning models to identify unusual or suspicious activity in relation to money laundering and terrorist financing. These models can be enhanced in such a way that they are capable of detecting patterns in relation to modern slavery.

To understand the exposure of your institution to risks such as modern slavery, it is essential to perform a risk assessment first. A risk assessment offers insight into which risks are relevant for you as an institution. Once these have been identified, technical scenarios may be implemented to cover these risks. An effective monitoring system should be configured such that institutions are capable of precisely targeting transaction patterns and behaviors consistent with known modern slavery and human trafficking typologies. Two examples of financial patterns and behaviors in the literature are:

• Anomalous patterns in ATM machines: upon receipt, the income or a high percentage thereof is quickly withdrawn in cash. Additionally, ATM activity regularly occurring at the same machine at the same time could potentially suggest that a third party is in control of their cards;
• Increased volumes/patterns/client behavior in crisis situations such as war, natural disasters: in crisis situations, such as natural disasters, conflicts, or economic downturns, the increased displacement and vulnerability of people can lead to a rise in human trafficking.

Furthermore, it may be that the models need to be enhanced with, e.g., geographies or other meta information derived from banking apps. Crime statistics worldwide show that certain countries and industries have a higher prevalence of modern slavery than others5. Rule-based and/or machine learning models can be enhanced with data of these specific high-risk countries and industries for use in their automated transaction monitoring.

When a pattern related to modern slavery is detected, further investigation will be required. As mentioned before, models are typically configured to detect money laundering at present, and thus, compliance analysts may be looking at alerts from that perspective. Therefore, it must be clear to the compliance analysts handling a given case that the client at issue is not to be evaluated solely because of possible money laundering by adding an explicit reference to or indicator of possible modern slavery. Analysts should therefore have up-to-date knowledge and skills for understanding and recognizing modern slavery.

Lastly, these frameworks should be evaluated and, if needed, updated regularly. It is essential that frameworks detecting modern slavery should be kept up-to-date to adapt to new methods and tactics used by criminals, including the increasing use of technology and changing patterns of exploitation.

Ultimately, due diligence is about more than just meeting regulatory requirements: it allows financial institutions to identify risks that could lead to human rights abuses. In this way, they contribute to a more secure global financial system, as well as to global efforts to eliminate modern slavery. How will you contribute to the fight against modern slavery in your financial practice?

This article is intended to raise awareness and share general insights, it does not assess any specific organization.