Modern slavery and the role of accountants

By: Susan Rossney, Sustainability Officer for Chartered Accountants Ireland

On 29 June 2022, Chartered Accountants Ireland partnered with Chartered Accountants Worldwide Network USA for a webinar on how accountants can tackle global modern slavery. While accountants are by no means at the forefront of the global fight against modern slavery, they do have a pivotal role to play in combatting the problem.

In the engaging webinar, speakers Professor Jan Bebbington, Caroline Haughey OBE, QC and Adam Schafer, Director of Supply Chain Sustainability with Intel explain what modern slavery is, how to spot the signs of it in your or your clients’ business or supply chain and what companies can do to mitigate the risk.

What is modern slavery?

Modern slavery is the control of one person by another for exploitation. While many believe that slavery is a thing of the past, the most recent Global Slavery Index estimates that there are over 40 million people caught up in modern slavery. One in four victims are children. In business or across supply chains, the number of those caught in forced labour is estimated to be close to 25 million. It is found even in the supply chains of the most diligent companies.

Many also assume that slavery is not a problem in developed economies. Nevertheless, national estimates confirm that modern slavery is a crime that affects all countries, with over 1.5 million people living in conditions of modern slavery in Europe, Australia, Japan and North America. In Ireland, the Global Slavery Index estimates that over 8000 people in Ireland are held as modern-day slaves, although it is likely that this figure is far higher. In the UK that figure is closer to 130,000.

And the numbers are likely to rise. According to Business in the Community Ireland’s report How to Mitigate the Risk of Modern Slavery, human trafficking is the fastest growing form of international crime and the third largest criminal industry after drugs and arms trafficking. A 2014 International Labour Organization report estimated the global profits generated by modern slavery to be $150 billion per year.

Legislation and regulation

As well as being insidious and cruel, modern slavery is a social crime and a financial crime, and comes within the remit of environmental, social and governance (ESG) considerations, both as part of responsible business practices and as a matter of compliance.

A wave of modern slavery legislation has begun to focus the attention of accountants, including the UK Modern Slavery Act 2015, which places a requirement on larger commercial organisations to annually report on the risk of modern slavery in their business and supply chain and to actively work to mitigate this risk. This includes companies operating in other countries, such as Ireland, but within the supply chains of these organisations. Other jurisdictions have also either enacted or are planning to enact similar legislation.

In March 2020, the UK government became the first to publish its own modern slavery statement, setting out its efforts towards eradicating modern slavery from its own £50 billion supply chains, including direct engagement with c. 400 suppliers and delivering training to over 250 government commercial staff.

Ireland does not have a good record in legislating against modern slavery. In fact, in 2021 it joined India, Indonesia, Bosnia and Romania on the ‘Tier 2 Watchlist’ of the US State Department’s Trafficking in Persons Report. This ranks governments based on their perceived efforts to acknowledge and combat human trafficking. In doing so Ireland became the only country in western Europe on this list of countries whose governments do not fully meet the minimum standards for the elimination of trafficking but which are making significant efforts to bring themselves into compliance with these standards. An example of one such effort that Ireland is making was the establishment of the specialised the Human Trafficking Investigation and Co-ordination Unit (HTICU) Garda Unit in July 2021.

Accountants and slavery

Everyone everywhere has a part to play in the identification of modern slavery. As Professor Jan Bebbington, Director of Pentland Centre for Sustainability in Business at Lancaster University, describes it, states have a duty to protect, companies have a responsibility to protect, and both need to provide effective remedy processes. Therefore individuals, business, civil society and government services have a role. Adam Schafer, Director of Supply Chain Sustainability with Intel, described one such remedy within Intel’s corporate responsibility strategy RISE strategy: Intel’s supplier engagement policies include a prohibition on its suppliers charging workers recruitment fees. When it discovers that workers have been charged fees by suppliers to secure employment, Intel ensures that those fees are returned. Since 2014, $25 million in fees have been returned to workers by Intel suppliers, positively impacting 45,000 workers in its supply chain.

A quick survey of attendees at the Chartered Accountants Worldwide Network USA event found that 93% of respondents felt that accountants have a role to play in combating modern slavery. Chartered Accountants regularly have a role in interrogating supply chains, examining or advising risk on risk management and compliance.

According to Dipak Vashi, Technical Manager, Financial Services at ICAEW, they also have the tools and skills to be instrumental in fighting this crime. “[A]ccountants can go beyond compliance to take more of a proactive advocacy role in tackling this crime” Vashi writes in ICEAW Insights “Modern slavery: nothing to do with me?”. “The key message is: silence is not an option.”

It applies not just to large businesses. Although legislation may require large firms to manage and disclose the actions they have undertaken to address modern slavery in direct operations and supply chains, small and medium sized entities which supply goods and services to these larger companies may also find that they have to consider their management of modern slavery to remain compliant with this legislation and part of these supply chains.

Accountants working in such companies should therefore be aware of modern slavery management accounting practices, with real-time monitoring and key performance indicators. Bebbington acknowledged that forensic accountants will be key in interrogating data, but also pointed to the usefulness of targeted audits and horizontal collaboration, such as between members of the same industry which are sourcing from the same array of factories working together to make sure that their audit regimes are robust and that the results are shared with others. Bebbington also pointed to the need to put people at the centre of risk analysis, and using data to inform where you need to build capacity. Examples of this include from the seafood industry, where data established that in global fishing boats with poor practices differ from other boats in that they visit different ports and stay there for shorter times; this can give an indication of where investigators need to go for more information.

Likewise, accountants in practice will need to familiarise themselves with the implications of this legislation on their corporate clients. Caroline Haughey OBE QC, who led the successful prosecution of members of the biggest modern-day slavery network ever exposed in the UK, described the consequences for perpetrators of modern slavery. These can include jail, confiscation of assets, civil prevention orders and/or civil recovery. Responsibilities on businesses, accountants and auditors can include severe reputational damage with subsequent implications for revenue and share price. Haughey also warned of the link between exploitation of workers in supply chains and connections with money laundering, bribery and corruption.

According to Haughey, the most important thing to do is to call out the problem if you suspect it is there:

“We know it exists, we know it’s a problem and it’s our responsibility to act and deal with it. One simply can’t close our eyes to the issues that are in front of us. Ask the questions. If you don’t get the answers remember not only your duties under your governing body, but your moral and ethical duty. Nobody gets something for nothing.”

How to spot the signs

When asked, only 55 percent of attendees at the Chartered Accountants Worldwide Network USA event said that they would know how to spot the signs of modern slavery in a  client’s/supplier’s activities. Speakers described some key points to look for.

The first step to take is to understand that no business – even well-run businesses – can say that their supply chains are free of abuse. According to Bebbington, you must keep in the forefront of your mind that you are likely to find it. This will allow a depth of understanding of the numbers, and allowing you to understand what is behind the numbers:  “It really important to have the expectation that this a systemic problem – it’s not just bad apples or bad actors, but rather the construction of our economic system have left a group of human being vulnerable and wherever there is vulnerability it will be exploited by either processes or people, so being a really smart and nuanced about the numbers and worrying about if it’s there.”

It is also useful to identify which areas and people are most at risk.

Who is most at risk?

Categories of workers
Certain categories of workers at the greatest risk of modern slavery are:

• seasonal workers
• migrant workers
• workers recruited through labour providers, and
• workers who have been trapped by modern slavery before.

SectorsThe sectors with the highest prevalence of slavery include:

• food and agricultural
• cleaning companies, including car washes
• construction companies
• maintenance companies, and
• companies involved in transport and freight.

According to the UK National Crime Agency, high cash-generative businesses are also reputed to be the businesses known to be linked to exploitation based on victim narrative and analysis. These include:

• beauty salons
• nail bars
• spas and massage parlours, and
• restaurants.

What should accountants look for?

In their position as advisors, accountants are often able to see the inner workings of a client’s business. They have sight of payroll and tax compliance, and often interact with suppliers and manage the supply chain relationship and have sign of suppliers’ capacity. This puts them in a clear position to spot potential the ‘red flags’ that could be signs of modern slavery.

‘Red flags’ include:

• suppliers committing to fulfilling orders beyond their usual capacity, suggesting the use of subcontracting or hidden workers
• multiple workers’ wages for client being paid into the same account, suggesting that their pay is being controlled by a third party
• business simultaneously engaged in unlikely combinations of activity – for example, construction, care workers and nail bars
• business employing workers who are living and working in the same location

Other signs can be found from investigating the following:

• how are staff recruited – are they subcontracted rather than directly recruited? Has there been a change in the use of recruitment firms? How well monitored and regulated are these recruitment firms? Has there been a sudden growth in use of this firm over others?
• are there proper checks and balances in ensuring that wages are going into the personally controlled bank account of person doing the job?
• has there been a change in the use of payroll companies?
• does the tax return reflect the face of the business?
• are there ethical and appropriate employment structures in place?
• is there good company communication?
• is there a whistle-blower policy?
• is there appropriate staff training to watch out for signs of modern slavery?
• is there too much money – does it look ‘too good to be true’? Are there sudden spikes in the amount of cash in and out? Has there been a sudden change in direction of profits – a change in how they are being generated?
• how do the employees look – are they unkempt or malnourished? Do they have appropriate safety equipment? Do they appear frightened or show signs of physical or psychological abuse? Do others speak for them when questioned?

You can find resources on ICEAW’s webpage Spotting modern slavery for more on how to spot the signs of modern slavery in a business or organisation.

What should accountants do if they discover modern slavery?

Noone wants to find evidence of modern slavery in a business and it is not always clear what steps to take.

When asked if they would know how to report suspicions of modern slavery, only 52% of attendees at the Chartered Accountants Worldwide Network USA event said they would.

ICAEW’s guidance is that if you suspect that someone is a victim of modern slavery or human trafficking DO NOT approach or confront them as you may put them or even yourself in danger.

Tackling the problem involves collaboration between governments, police, immigration officers, NGOs and many others. This collaboration is pivotal to overcoming this global issue, as it will facilitate the sharing of data and knowledge, and help develop appropriate solutions to detect, investigate, and prosecute modern slavery cases and strive to eliminate it. As Bebbington puts it: “Accountants can’t deliver sustainability, but we will not progress towards sustainability without the accountants. We are necessary but not sufficient. So realising that and making good friends to help ‘necessary’ to become ‘sufficient’ is where it’s at.”

Support available

Support in Ireland

• Business in the Community Ireland (BITCI) has a Report & Guidance Tool, with a wealth of information, including practical actions to mitigate the risk of modern slavery. It also contains contact details for those concerned about human rights infringements, modern slavery and human trafficking.

Supports in Northern Ireland

• Stronger Together is a UK-based multi-stakeholder business-led initiative aiming to reduce modern slavery particularly forced labour, labour trafficking and other hidden third-party exploitation of workers.
• The Gangmasters & Labour Abuse Authority (GLAA) is the investigative agency for labour exploitation in the UK & Northern Ireland. www.glaa.gov.uk

Supports in the UK

• Along with the above, the UK has a free-to-use anti-slavery digital learning tool. Created in March 2022 by the UK government, in partnership with the UK Independent Anti-Slavery Commissioner and Themis, it provides guidance and training on what modern slavery is, how to spot it and what to do when you find it.
• This training includes a section specifically for accountants, which includes expert insights from the team in ICAEW.

Resources for accountants

• Chartered Accountants Worldwide Network USA event recording
• In ICAEW Modern Slavery page, you will find information on red flags, how to meet regulatory requirements and how accountants can go beyond compliance to take more of a proactive advocacy role in tackling this crime.
• Well worth a listen is the ICAEW podcast on tackling domestic modern slavery. You will hear Caroline Haughey, OBE QC, who spoke at this week’s seminar for Chartered Accountants Ireland/Chartered Accountants Worldwide Network USA, and Laura Thomas, Senior Prevention and Partnerships Officer of the Gangmasters and Labour Abuse Authority (the GLAA).
• Sign up to the a free three-part seminar series co-developed by ICAEW North West and the Pentland Centre for Sustainability in Business at Lancaster University. You can listen back to the recording from speakers Jan Bebbington, Nikesh Pandit and Dipak Vashi talking on the topic of Modern Slavery from 13 July.
• Find out more about Indicators of Modern Slavery and Human Trafficking in the Accountancy Sector from the UK National Crime Agency.

This article was first published by Chartered Accountants Ireland at the following URL: https://www.charteredaccountants.ie/News/modern-slavery-and-the-role-of-accountants