11 minute read
A crime against humanity
With modern slavery prevalent in the Asia-Pacific region, the risks to insurers and their customers are significant. Now is the time for all businesses to act against it.
Story by Anna Game-Lopata
IN SHORT
› The criminal act of slavery is prevalent globally and therefore likely in the supply chains of many major companies.
› Risks to insurers include exposure to criminal penalties, reputational damage and liability.
› Insurers can respond by undertaking due diligence on their investment programs and offering cover to customers who undertake their own due diligence.
› In Australia, the Modern Slavery Act 2018 requires all entities with annual consolidated revenue of at least A$100 million to investigate and report on modern slavery in their supply chains.
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Andrew Forrest, the founder of Australian mining giant Fortescue Metals Group, was shocked by the prevalence of slavery within the supply chains of many global companies, starting with his own.
In his submission to the 2017 joint Parliamentary inquiry into modern slavery, Forrest shared the confronting reality of a 2012 audit into one of Fortescue’s major suppliers: ‘Passports of workers were being withheld. Intermediary agencies were charging excessive fees that could never be repaid. Crippled by crushing debt and without their passports, workers were unable to leave their employment and had no ability to report the conditions in which they worked.’
Andrew Forrest / Fortescue Metals
Forrest realised that his company had been ‘creating conditions that allowed slavery to thrive’. His immediate response was to use Fortescue’s commercial leverage to ‘ensure all passports were returned, illegal fees paid back and major overhauls were made to ensure it did not happen again’.
Fortescue Metals has since put systems in place to give effect to a zero-tolerance policy for modern slavery. Forrest has dedicated himself to anti-slavery activism, including co-founding the Walk Free Foundation, which publishes the Global Slavery Index.
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What is modern slavery?
Two international treaties, the League of Nations Slavery Convention 1926 and the United Nations Supplementary Convention 1956, offer definitions of slavery that talk about the ‘ownership’ of a person.
Similarly, Roscoe Howell, founding director of Australian organisation Slavery Links, explains slavery as ‘when one person treats another person as in effect “owned”’.
‘Australia defines slavery in this way in its Criminal Code. Division 270 of the Code creates slavery offences from debt bondage and deceptive recruiting at the lower end through forced labour to servitude and slavery at the more serious end,’ says Howell, whose organisation fights slavery by developing policy and encouraging better decisions.
In November 2018, the Australian Parliament passed the Modern Slavery Act, which defines modern slavery as ‘… situations where coercion, threats or deception are used to exploit victims and undermine or deprive them of their freedom’.
‘Slavery is a serious international crime,’ says Howell. ‘Governments are obliged to suppress slavery and prosecute wherever it is found.’ Howell says ancient systems of slavery have existed for many generations in the Indo-Asia-Pacific region. ‘Our awareness of these systems is emerging, but they have permeated our ways of being as well as the institutions that are supposed to support whole societies.’
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Extent of the problem
Data from Walk Free’s 2018 Global Slavery Index points to 15,000 people living in conditions of modern slavery in Australia and more than 40 million worldwide — and these figures are considered conservative, with many forms of modern slavery not being counted in global estimates.
According to the index, almost 25 million of those enslaved are in forced labour, keeping a range of global industries afloat and generating billions of dollars in profits for those exploiting them.
The Asia-Pacific region has the second-highest prevalence of slavery in the world and the highest prevalence of forced labour. Howell says systems of slavery prey on people who are vulnerable or disadvantaged. ‘Such people live precarious lives,’ he says. ‘They exist in the informal economy or outside it entirely. They are harvested as slaves and can be kept by extreme forms of overcontrol in places where mainstream life does not notice — on the streets of a city, on a farm or in a remote quarry.’
Roscoe Howell / Slavery Links
Former Australian Member of Parliament Chris Crewther instigated and chaired the 2017 Modern Slavery Inquiry, which culminated in the country’s first Modern Slavery Act.
He says industries that produce goods and offer services requiring a larger level of low-skilled and intermittent labour jobs are more susceptible than others to slavery. ‘High-risk sectors include extractives, textiles and fashion, fishing, electronics, cleaning and agriculture [including horticulture], to name a few,’ he says.
Textile production is one sector that experts say is more susceptible to slavery.
Photography: Getty Images
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Australia takes a stand
Australia’s Modern Slavery Act 2018 created a new way of thinking about slavery, as a problem that could possibly be reduced if large entities would look for it in their supply chains and take action to remove it.
‘In this new way of thinking, the legal term “modern slavery” includes the crime of slavery, the crime of human trafficking and the worst forms of child labour,’ says Howell. According to Crewther, Australians and New Zealanders have a key role to play in helping stamp out modern slavery. ‘Australian and New Zealand entities, governments and individuals have in-depth relationships, operations, investments and supply chains in the Asia Pacific,’ he says.
In addition, ‘insurers have a key role to play, along with entities like banks, asset managers, investment firms and super funds, to lead by example and help shift insured customers and the marketplace more generally in the right direction on modern slavery’.
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Obligations under the Act
The Modern Slavery Act applies to entities based or operating in Australia, whose annual consolidated revenue is at least A$100 million (including the government, which is a world first).
With the first reporting deadline approaching, entities operating at that level must provide a modern slavery statement. Insurers have the same obligations to report under the Modern Slavery Act in relation to mandatory criteria within six months of year end, with a three-month COVID-19 extension recently being granted.
‘Smaller insurers under that revenue level can, and should, voluntarily report under the legislation,’ says Crewther. ‘Doing so shows leadership for both those insurers and their customers, reduces risk for themselves and their customers, and helps tackle the crime of modern slavery.’
Chris Crewther / 2017 Modern Slavery Inquiry
Importantly, many entities operating in multiple jurisdictions (such as New Zealand companies operating in Australia and / or the United Kingdom) must also report under existing laws in those countries. ‘Existing national laws can have a clear transnational effect across operations and supply chains of multiple entities operating in the Asia Pacific and globally,’ says Crewther.
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Risks for businesses and insurers
Modern slavery is not just an emerging risk for insurers; it is an existing risk.
Insured businesses and associated management turning a blind eye to modern slavery in their supply chains, or perpetrating it themselves, may also expose themselves to criminal charges, civil penalties and liabilities, reputational and financial risks, investment risks, condemnation from customers, shareholders, employees and the wider community and potential lawsuits around misleading and deceptive conduct.
Insurers can use their leverage when insuring a risk in location where modern slavery is rife.
Photography: Getty Images
With many years of human rights practice, including supply chain management advice to entities following the enactment of the UK Modern Slavery Act 2015, Norton Rose Fulbright partner Abigail McGregor is an expert on the preparation of modern slavery statements.
She says boards signing modern slavery statements on behalf of their company could expose insurers to claims under directors and officers (D&O) insurance policies. ‘For instance, D&O could be triggered if a claim is made that the directors of an insured company approved a statement, but were knowingly concerned in a misleading or deceptive conduct,’ McGregor explains.
‘Likewise, a claim might be made under the laws of certain countries alleging that an insured company breached a duty of care to protect its workers. ‘Board members need to ensure there is a reasonable basis for the expression of opinion in the statements they adopt and sign. They want to make sure they’re not putting their names to something that hasn’t been properly thought through and doesn’t comply with the Act.’
Abigail McGregor / Norton Rose Fulbright
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Exposure through investment
Further complexity arises in the exposure to modern slavery through insurers’ investment decisions.
‘When making investment decisions, the onus is on insurers to take into consideration how they might be connected to modern slavery through those investments and what kind of due diligence can be undertaken,’ says McGregor. ‘This can definitely be challenging where insurers have large portfolios.’
However, she adds that decisions around the supply chain risks of modern slavery should be considered using modelling alongside decisions around environmental, social and governance risk, which are increasingly common.
Abigail McGregor / Norton Rose Fulbright
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Facilitating change
McGregor also points to the banking sector, which, under the United Nations Guiding Principles on Business and Human Rights and soon-to-be-adopted Equator Principles 4, has been working on managing the risk that it contributes to modern slavery directly or indirectly through the financing of projects with human rights impacts.
‘There is parallel thinking in relation to insurance, as the provision of insurance is a fundamental part of doing business,’ she says. ‘It has to only be a matter of time before the attention banks get in relation to the facilitation of business is extended to insurers.
‘At the very least, for example, insurers could use their leverage with projects in difficult locations by making agreements with insureds that cover will only be provided for incidents, say in Pakistan, Burundi or Cambodia, if the insured can demonstrate that proper processes are in place to manage the risk of modern slavery.
‘In relation to project finance, the Equator Principles and the Principles for Responsible Investment all provide mechanisms by which financial institutions can manage risk.
‘The approach is good for insurers because it reduces risk,’ she adds. ‘They could drive change. And that’s what the UN Guiding Principles would say insurers should be doing when they’re insuring a risk in a location or business that is high risk for modern slavery.’
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Key role for customers
In addition, Crewther says insurers can reduce risk by ‘helping and encouraging insured customers to: understand modern slavery; take the issue seriously; understand the risks; take a prudential approach; undertake proper due diligence within their operations and supply chains; be transparent; and be leaders in tackling this crime’.
‘Expectations should also be clearly communicated to business customers, management and employees of insurers and brokers themselves, that any modern slavery crimes found or suspected must be reported to the appropriate authorities,’ he says.
Photography: iStockphoto
‘Suppliers should be engaged to eliminate the modern slavery and / or exploitation occurring, to remediate any harm caused and to prevent future harm, only cutting off those suppliers if they will not take such actions or appropriate actions to do so.’
Abigail McGregor says Norton Rose Fulbright’s joint research with the British Institute of International and Comparative Law found that companies who sacked suppliers where child labour was found simply prompted the supplier to keep trading without doing anything to address the issue.
‘Employees of that supplier lost the benefits of advocacy from a client arguing for their better treatment,’ McGregor explains. ‘Often, a far more effective answer is for the company to exercise its leverage to have the supplier improve its performance.’
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The road to transparency
McGregor says compliance with the Modern Slavery Act does not come with the expectation that everyone can describe and manage their supply chain risk in ‘year one’.
‘No-one anticipates perfection, but the aim of the game is transparency,’ she says. For this reason, the Act comes with no penalties for non-compliance other than the ability for the government to publicly list non-compliant entities; however this will only occur after these entities have been given an opportunity to comply.
Abigail McGregor / Norton Rose Fulbright
‘The government aims to engage with business to encourage good behaviour, rather than name-and-shame, and it is likely that it will be slow to add names to the register,’ says McGregor.
‘Under the Modern Slavery Act, the driver for change is transparency and accountability rather than criminal penalties,’ adds Fraser Stowers, executive manager of procurement at IAG, whose team is responsible for developing and overseeing IAG’s cross-functional modern slavery program.
‘We support a collaborative approach across the industry. The more we speak the same language within the industry on modern slavery, the better able we all are to look deeper into our supply chains and make improvements where needed.’
Stowers adds that creating visibility and transparency is going to take a long time, but the Modern Slavery Act 2018 is a good start. ‘We look forward to the insurance industry in Australia and New Zealand working more closely together on this issue, to lift the bar as a sector.’
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ANNA GAME-LOPATA / ANZIIF content writer
