Modern slavery and money laundering are interlinked because one person's exploitation leads to another person's financial gain. This blog explores what modern slavery entails, how that's linked to money-laundering, and what organizations can do in the fight to prevent it happening.
Far from being a thing of the past, slavery is very much alive in the world today. Now called “modern slavery”, it is the same criminal action of the oppression and exploitation of one person by another.
According to a definition provided by the London Metropolitan Police “Modern slavery is the illegal exploitation of people for personal or commercial gain.” This is an accurate and a true statement, but it doesn’t seem to do justice to the offence, or the individuals impacted by it.
The victims become a homogenous mass rather than being mothers and fathers; sons and daughters; brothers and sisters. And the term exploitation somehow doesn’t feel up to the job of describing the crimes associated with modern slavery.
Modern slavery is associated with a variety of human rights abuses and crimes, including sexual exploitation, domestic slavery, unpaid and forced labor, people trafficking, and even organ harvesting, which was estimated to have generated between $840 million and $1.7 billion in illegal funds globally in 2017. Six years later, is that sum likely to have declined?
There are different types of modern slavery, however one of the most common is human trafficking. People will be taken by force, threat, or deception and moved to a new location – often another country – where they are then exploited.
People might be trafficked for a number of purposes: forced into prostitution; made to work in the illegal drug trade; or used as unpaid domestic servants. The number of people trafficked each year across the world is nearly impossible to estimate. The figures vary hugely from thousands to millions. The UK government website for example says, “the number of potential victims…has risen from 2,340 in 2014 to more than 10,000 in 2020.” And it seems likely this is a conservative estimate, because by its nature modern slavery is designed to go undetected.
In 2014, the UK government launched its first slavery strategy, which was followed by the Modern Slavery Act of 2015. This legislation has been taken as a blueprint by many other countries trying to tackle the issue.
The problem is that the method and means of enslaving people continues to change. For instance, women have more usually been enslaved, however the proportion of children and men becoming victims of modern slavery has increased since the 2015 act.
In a statement on modern slavery by Priti Patel, when home secretary, she said: while progress has been made since initiating the slavery strategy in 2014, she was committed to creating “a new strategy in 2022 that was responsive to the new realities [of modern slavery].”
Money is essentially at the root of modern slavery. Casting back to what the London Met Police said, modern slavery is ultimately about “personal or commercial gain.” It’s not motivated by the desire to take away someone’s human rights, that’s a horrible consequence, it’s motivated by gain i.e., making money at the expense of someone else's life and freedom.
Modern slavery and money laundering are essentially linked because the money criminals and illicit companies make from modern slavery needs to be “cleaned” so it can enter the mainstream economy.
The types of crime associated with modern slavery are often cash-based, which means various money laundering tactics are needed to process the cash to make it legitimate.
And because money is at the root of modern slavery, regulated businesses have a vital role to play in its prevention by way of anti-money laundering (AML) strategies and compliance with AML regulations.
An organization’s role in AML could be anything from a process of robust know your customer (KYC) checks before onboarding an individual or corporate customer to ongoing risk monitoring that looks at ultimate business owners (UBOs), unexplained wealth, and unusual transactions.
Anti-money laundering procedures are a regulated organization’s legal and moral obligation. They are how firms play a part in stopping modern slavery.
Organizations implement AML policies and procedures that consider how their business could be used to launder funds and how they plan to control and mitigate that risk. This spans the whole customer lifecycle from due diligence at onboarding to ongoing risk monitoring.
The AML policy an organization chooses will influence the KYC checks used to prevent criminals being onboarded and ensures suspicious or criminal activity is identified and reported to the relevant authorities.
Perpetual KYC (pKYC) is another important tool in the AML armory, as duties and responsibilities don’t begin and end at customer onboarding. With a pKYC solution, any change in a customer’s risk profile that means they could be engaged in money laundering or suspicious activity can be flagged, investigated, and reported.
Employee training is a big factor in the fight against money laundering and therefore modern slavery by association. Firms can put controls and automated AML procedures in place, but it’s often the people in the business who spot new and suspicious scenarios. They are the ones who can report unusual activity on accounts or flag customers who might have been highlighted in a monitoring system.
Moody’s Analytics Know Your Customer (KYC) is transforming risk and compliance, creating a world where risk is understood so decisions can be made with confidence about whom to work with.
Our customers build their own unique KYC ecosystem using our flexible workflow orchestration platform, leading datasets, analytical insights, and integrations with global providers to create solutions that help stop financial crime.
Get in touch any time to talk about your KYC and AML program – we would love to hear from you.