The financial sector is a crucial component of today’s economy. It is made up of banks, investment firms, insurance companies and other institutions that provide a wide range of services to people and companies, from saving and investing money to borrowing and insuring against losses.
By providing capital to businesses, the financial sector helps them grow. Likewise, by offering loans to individuals, it helps them to buy the products or services they need but could not otherwise afford. By insuring people’s health, homes or assets, it gives them financial support if something unexpected or bad happens.
A publication by the Inter-Agency Coordination Group against Trafficking in Persons (ICAT), titled Sustainable Finance and Trafficking in Persons shows that the financial sector can play an important role in countering human trafficking.
The financial sector has a unique role to play in preventing human trafficking, supporting investigations and prosecutions, promoting financial inclusion for vulnerable people and providing remedies for victims.
The financial system is sometimes used by criminals, including human traffickers, to build their businesses and legitimize as well as move around their profits.
First, investors can offer, knowingly or unknowingly, financial services and money to businesses that profit from exploiting people in their operations or supply chains. Such exploitation often involves people – adults and children – being forced to work in poor conditions for little or no pay in high-risk industries, such as agriculture and farming, the fishing industry, cleaning services or construction.
Second, profits from human trafficking can flow back into the financial sector. Illegally obtained money can be laundered – disguised and presented as legitimate. When this money enters the formal economy, it can be used to finance other criminal activities, such as drug trafficking or terrorism.
Third, the lack of accessible and affordable financial services can make individuals vulnerable to human trafficking. Individuals unable to secure credit or insurance, when in extreme need, may be driven into desperation resulting in them taking up precarious jobs or being exploited in forced labour.
Sustainable finance integrates environmental, social and governance considerations into financial decision-making.
This means ensuring that financial market participants take proper account of environmental factors, such as a company’s greenhouse gas emissions or harmful waste; social factors, such as working conditions, including the risk of human trafficking; and governance factors, such as the transparency and accountability of the organization.
Investors are increasingly recognizing that overlooking these risks is not just a moral issue, but that it can also hurt financial returns. Companies involved in exploitative practices face reputational damage, legal challenges and operational risks.
By adopting human rights policies that specifically address human trafficking, financial sector entities can assess potential trafficking risks and avoid supporting businesses and activities that exploit people. For example, such a policy can help investors make sure they are bringing capital to socially sustainable enterprises.
Financial institutions can report suspicious transactions to law enforcement agencies to help them conduct investigations, disrupt traffickers’ financial flows and prosecute perpetrators. By enabling confiscation of traffickers’ profits, financial sector actors can also help to curtail business operations for traffickers and reduce the profitability of such operations.
Improving access to financial services for people in vulnerable situations can reduce their susceptibility to trafficking. This is particularly important for survivors of this crime. Having already been exploited and likely to be in financial distress, they may be at an increased risk of being re-trafficked.
Providing effective remedies to victims of trafficking can help them rebuild their lives and reduce the risk of their re-trafficking.The financial sector can contribute to such , and help ensure that victims have access to legal, informational and material support, including compensation for the exploitation they suffered. They can also ensure that survivors of the crime, in particular those made to commit other crimes by their traffickers, are not prohibited from opening bank accounts and accessing financial resources.
Governments also play a crucial role in fostering sustainable finance practices that help to combat trafficking.
Adopting and enforcing human rights due diligence laws can help to reduce trafficking. These laws require financial sector actors to analyze their business counterparts and make sure that their investments, loans and other services do not contribute to exploitation and other abuses.
Human trafficking-related disclosure laws require that companies report on their efforts to address trafficking in their operations and supply chains. They provide transparency for investors, enabling them to assess a company’s performance on human rights issues. Negative assessments that result in loss of financial investments may encourage businesses to strengthen their transparency and efforts to combat trafficking.
An international treaty on business and human rights, agreed upon under the auspices of the United Nations, would help in addressing human trafficking in the financial sector.
Social taxonomies define what constitutes socially sustainable investment, including from an anti-trafficking perspective.
They provide clear guidance to investors on what countries consider socially sustainable practices. For example, a social taxonomy can outline criteria for investments that promote decent work and prevent exploitation and abuse in business operations and value chains.
The presents recommended metrics for social taxonomies and human trafficking-related disclosure laws. These metrics can be used by governments, investors, and companies to develop and refine their approaches to sustainable finance and human trafficking.
