Human trafficking is a broad term used to denote various forms of exploitation and abuse; the practice does not necessarily involve the movement of persons from one location to another. Forced labor or labor trafficking, which affects nearly 25 million people worldwide, involves one party employing techniques such as physical threats, violence, psychological coercion, abuse of the legal process, deception, kidnapping, fraud, smuggling, or other coercive means to compel another party to work. This practice encompasses child labor and debt bondage.
This practice is particularly prevalent in business supply chains and is sometimes referred to as modern-day slavery. Private-sector companies may unknowingly be involved in human trafficking and forced-labor practices, which is primarily driven by competitive global economic markets and the demand for cheap labor. The unwitting use of forced labor can occur at any level of a company’s supply chain but is more common at lower levels such as resource extraction or basic manufacturing.
The Risk of Human Trafficking and Forced Labor in the Supply Chain
Human trafficking in the supply chain can significantly impact the operations of a company. Forced labor infractions may include substantial financial penalties and can hinder short or long-term business development and growth. In the absence of a fully optimized and controlled supply chain, businesses may risk exposure to the following outcomes:
- Reputational damage and brand perception: Prospective employees, clients, and investors have become increasingly interested in ethical business practices, fair labor and governance processes. Companies willingly or unwillingly engaged in human trafficking or forced labor practices may do irreparable damage to their reputation and credibility. Company culture and brand values may impact external investments and share prices.
- Consumer Trust: Consumers frequently demand transparency with regard to business retail supply chains and their labor practices. Businesses could sustain potential damages and financial losses because of ties to unfair or forced labor practices.
- Business Interruptions: Businesses implicated in labor malpractices at any level of their supply chain may be forced to establish new supply sources or manufacturing facilities. These changes could result in significant business interruptions and revenue losses. Companies may also need to spend significant sums of money in the process of selecting new suppliers, and sizable losses may occur where demand for goods are high and supply is low.
- Financial Penalties: Companies may be liable to pay financial penalties to governments, other companies, or trafficked victims if found guilty of allowing trafficked persons to be employed within their supply chain, even if their involvement was indirect or their knowledge of the situation was limited. Additionally, non-compliance with a supplier code of conduct could expose the company and its investors’ personal financial assets to risk.
Tips for Managing Risk
Businesses are advised to establish and maintain risk-identification capabilities to mitigate their exposure to illicit labor procurement and human rights infractions. The implementation of social compliance structures, which encompass an integrated set of policies and practices, is of paramount importance in this regard. These structures can assist in ensuring thorough adherence to a code of conduct, which typically addresses risks related to forced labor.
- Businesses should maintain visibility and transparency across their supply chain, which includes their sourcing and purchasing structure, supplier and intermediary relationships, third-party service providers, and manufacturing and transportation networks.
- Companies, brands, and retailers should regularly inspect their suppliers (including sub-contractors and sub-suppliers) for misconduct or non-compliance.
- Companies should seek to prevent their suppliers from sub-supplying without legal consent.
- Companies should consider risk management processes that could mitigate exposure to illegal labor practices by assisting with organizational policy development, program governance and execution, training, and auditing and disclosure.
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