In 2024, the number of risk human trafficking risk events recorded in Moody’s modern slavery module totalled more than 16,800. Forced labor affects nearly 28 million people globally according to the International Labour Organization (ILO) and generates approximately $236 billion annually in illegal profits.
Forced labor is a pervasive issue, that can take a multitude of forms including human trafficking, sextortion, domestic servitude, debt bondage, child labor, and forced marriage. And it is closely intertwined with other illegal activity including bribery, corruption, sanctions evasion, money laundering and terrorist financing. This presents significant risks for organizations in terms of compliance, corporate and social responsibility, and brand reputation.
Criminals are savvy at hiding their illicit activities connected with exploiting workers. Plus, there are variables in global regulation and enforcement, while third-party networks can run into many layers and tiers - all these factors make it challenging to detect when forced labor, and related offenses, exist within a supply chain or customer base.
Understanding and addressing the interconnected risks posed by forced labor, however, is crucial.
Forced labor has many forms; the ILO defines forced labor as “work or service … exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily.”
Understanding the issues holistically, conducting risk assessments, meeting compliance obligations, and taking corporate accountability are essential in helping to prevent forced labor practices.
And there is a growing body of legislation specifically designed to target this area of organized crime, including the UK’s Modern Slavery Act; the French Vigilance Act; the German Supply Chain Due Diligence Act; the US Trade Facilitation and Trade Enforcement Act; and Australia’s Modern Slavery Act.
There are also multi-layered sanctions frameworks to combat criminal networks engaged in human trafficking and forced labor practices.
Despite the ongoing introduction of legislation and the commitment of organizations and governments globally to tackling forced labor, data indicates the number of related risk events is increasing in many areas. Moody’s data shows for instance that more than 1,300 unique risk profiles of people / entities with a forced labor-related risk were added to its screening database in 2023.
Use of forced labor is both global and highly organized and estimates for annual profiteering run into the hundreds of billions of dollars. Illegal practices are pervasive and exist in many sectors, including manufacturing, construction, agriculture, hospitality, and domestic work.
Organized crime groups engaged in exploitation of forced labor strive continuously to hide their activities and their profits; leveraging bribery, corruption, and money laundering to continue conducting business and processing proceeds.
Criminals also embroil legitimate businesses in their crimes through, for instance, connections deep within a supply chain or through the processing of financial transactions through legal entities, like shell companies.
Legitimate businesses and government agencies therefore implement screening and monitoring; forensic investigations; due diligence and risk management strategies to ensure compliance with modern slavery and forced labor laws, as well as anti-money laundering and anti-bribery and corruption regulations. A holistic, data-driven, risk-based approach to understanding forced labor, and the risk of connected crimes, is key to third-party risk management (TPRM) overall.
Forced labor is a complex issue, so as well as leveraging due diligence across a supply chain and customer base, looking for risk factors related to operational malpractice, high-risk beneficial owners, or problematic jurisdictions, there are other indicators organizations can be aware of that show where risks exist, and how legal structures may be used to obscure illegal operations or the origins of illicit funds.
Gaining transparency around different types of risk in supply chains; in business relationships; in beneficial ownership through due diligence can help organizations understand their exposure to risk and avoid repercussions through non-compliance or unwanted associations.
Through active third-party risk management and compliance programs, businesses can avoid fines, civil and criminal penalties; brand and reputational damage; and negative financial or operational impacts.
Tackling forced labor throughout a third-party network of suppliers and customers takes organization, data, technology, and ongoing vigilance. This includes use of screening procedures, data, and tools to identify areas of high-risk through a combination of factors such as:
A combination of data points can support compliance with regulation and create an overall picture of risk to help organizations understand who they are doing business with or where further investigation or enhanced due diligence may be needed. The appropriate action can be taken to mitigate risk.
Leveraging intelligent screening and AI-powered technology can also support efforts to unify risk indicators and reduce false positives during due diligence or investigations, helping create more transparency across a customer base, complicated supply chain, or opaque corporate structure.
Forced labor and financial crime are inextricably linked. Data and tools that help indicate risk associated with human rights abuses, forced labor risk, bribery, corruption, money laundering, and organized crime can help organizations manage threats while supporting ethical business practices.
Moody’s offers end-to-end solutions for compliance and third-party risk management, providing a unified approach. Moody's automated solutions can help organizations transform their supplier due diligence, know your customer (KYC) processes, and ongoing AML programs to account for different types of risk, including forced labor.
For more information about how Moody’s can help you understand who you are doing business with, please get in touch – we would love to hear from you.