How the Human Trafficking ESG Risk Could Impact Your Business
Of the many things that keep board directors awake at night, human trafficking is probably not high on the list. But when you consider that more than 40 million people (a quarter of them children) are trafficked for forced labor and sexual exploitation, the magnitude of human suffering cannot be ignored by corporations.
Human trafficking is the fastest-growing form of international crime and one of the most lucrative of criminal activities in the world. In the United States, many people think of human trafficking as something that primarily happens overseas, but that’s not the case. The National Center for Missing and Exploited Children receives daily reports of child sex trafficking in all 50 US states and in every type of community throughout the country. It could be happening in your neighborhood.
Several industries are more susceptible to these sorts of crimes, such as financial services, airlines, travel agencies, hoteling, and the short-term rental industry. Regulators are starting to demand more accountability from companies to look for red flags that might indicate possible criminal activity.
Financial Services, Travel, and Hospitality
Financial services firms may encounter suspicious activities when human traffickers attempt to use legitimate firms to conduct illicit financial transactions. An analysis of documented trafficking in the United States showed how financial services firms provide banking and money services business to several industries known to have some degree of human trafficking risk. Some are obvious, such as escort services, illicit massage parlors, and strip clubs. However, many others are not, such as restaurants and food service, agriculture, construction, landscaping, cleaning services, manufacturing, forestry, and even health care.
The hospitality industry is particularly vulnerable to traffickers, especially sex trafficking. Trafficking victims have sued hotels, but historically most of these cases have been dismissed. There are signs that the courts are beginning to hold hotels to a higher standard of accountability for the actions of criminals within their establishments.
Other critical players include airlines and travel agencies, which can use their data to identify red flags. Training and general awareness are important for employees, such as flight attendants, ticket counter staff, and booking agents, to understand the signs of human trafficking, forced labor, and forced sex trafficking.
How Your Board Can Address Risks
Besides the impact on the lives of those directly affected by it, human trafficking creates business risks for those industries that are exposed to it—both directly and through the financial system.
As traffickers become more sophisticated, companies must employ new data-driven measures to prevent, detect, and respond to human trafficking. The following steps will help any company—and its board—become more prepared to fight human trafficking and reduce its risk of exposure:
Educate yourself on how human traffickers might use your industry and specific company to commit their crimes.
Update your risk assessment and internal controls to address the risks.
Collaborate with the industry and organizations like the Anti-Human Trafficking Intelligence Initiative and others.
Use existing industry and company-specific red flags.
Train your employees to recognize the signs of human trafficking and forced labor.
Know your data and develop human trafficking analytical detection scenarios and escalation procedures.
Establish law enforcement liaisons to facilitate reporting of red flags.
Incorporate human trafficking litigation or disclosure scenarios into your crisis communications planning. The financial impact of a potential incident is likely to pale next to the cost of reputational damage if you are not prepared.
In addition to the direct business risks, investors are now more aware of social issues. Even institutional investors are more issue-focused, and specifically very conscious of human rights and human dignity issues. Human trafficking allegations or adverse court decisions could impact how investors view the company.
As environmental, social, and governance (ESG) issues are increasingly viewed as serious business risks, companies could face concerns from investors over whether the company remains a good investment, and publicly traded companies may even find themselves in proxy fights with activists over their board seats.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.
Ken Jones is a senior managing director at FTI Consulting.
Ozgur Vural is a managing director at FTI Consulting.
Edith Wong is a managing director at FTI Consulting.
Suzanne Blanton is a director at FTI Consulting.