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Corruption WP Cover Photo

Photo: Verité

By Declan Croucher, Verité

Verité’s on-the-ground research, risk assessments, and monitoring work in global supply chains routinely uncover situations where unethical labor brokers and corrupt government officials are instrumental in greasing the wheels of labor trafficking. The foreign subsidiaries, franchisees, joint ventures, and suppliers of global multinationals who end up employing trafficked migrant workers frequently express ignorance of the continuing—and largely hidden—scourge of modern-day slavery that affects more than 20 million people.

Is there a direct connection between the corrupt practices occurring in the foreign migrant labor supply chain and the type of red flags associated with human trafficking and forced labor? Yes. These red flags include deception regarding employment terms and conditions, illegal or unethical placement fees charged to foreign contract workers, unexplained fees and costs, lack of transparency, and workplace practices such as passport retention and “runaway insurance” deposits.

Recently issued Foreign Corruption Practices Act (FCPA) guidance from the Department of Justice (DOJ) reaffirms that payments to foreign government officials (e.g., border control, immigration, or law enforcement) to gain an improper business advantage or to secure or maintain business can give rise to liability, regardless of whether there was actual knowledge of wrongdoing or purposeful avoidance of such knowledge. The FCPA makes it clear that “willful blindness” or “deliberate indifference” to red flags is sufficient to establish criminal knowledge of corrupt practices.

US companies, including foreign subsidiaries, franchisees, joint venture entities, or even suppliers that use third party employment agencies or labor brokers, run the risk of potential FCPA liability. The risk arises from the fact that these entities rely on employment agencies and labor brokers who must interact with foreign officials to obtain work and travel permits, visas, etc. Any interaction with foreign officials creates potential for exposure under the FCPA.

Companies subject to the FCPA need to understand that the agents and brokers they hire may be paying bribes to an assortment of players in the foreign labor supply chain, including sub-agents and labor department officials involved in immigration, border control, and law enforcement officials. Often these commissions or bribes may be funded by excessive fees charged to workers— which are almost invariably illegal, and so excessive that workers take on considerable debt at usurious interest rates in order to secure what they were fraudulently led to believe would be well paying contract jobs. Moreover, kickbacks are frequently paid to those in the workplace who choose the agent or broker, thus creating the potential for liability under other applicable laws and regulations, including those laws and regulations that target commercial bribery.

There is a high correlation between public sector corruption and trafficking in persons for labor exploitation. Many sending countries that Verité knows to be labor trafficking hot spots— including Indonesia, Thailand, Vietnam, Bangladesh, India, Myanmar, Nepal, Mexico, Guatemala, Ecuador, and the Philippines—also rank among the lowest on Transparency International’s 2014 Corruption Perceptions Index.

Both public and private-sector corruption facilitate and obscure the abuse of vulnerable foreign migrant workers, directly contributing to the growth of a transnational criminal enterprise increasingly run by regional and global networks. From a global perspective, the United Nations Office on Drugs and Crime states unequivocally that “trafficking in persons and corruption are closely linked criminal activities.”

Endemic corruption and inefficiency push many migrant workers to opt for unofficial channels into foreign employment—individual or local “agents” who function outside the legal framework. A study conducted by the Asia Foundation in 2012 reveals that these unlicensed and unregulated agents work in concert with recruitment agencies in Nepal, India, and other receiving countries to use fraudulent passports, visas, and contract documents to smuggle migrants to manufacturing, construction, and service jobs in Southeast Asia and the Gulf States. The sad irony is that in their efforts to avoid the inefficiency and corruption of the “official” route, the foreign migrants’ undocumented status actually significantly increases their vulnerability to forced and bonded labor at the hands of unscrupulous agents. Some of the inherent features of foreign employment transactions make them highly susceptible to corruption. The one-off nature of the transaction, involvement of unknown foreigners living in distant places, the maze of bureaucracy in the preparation of travel documents, involvement of layers of middlemen and agents, tight deadlines, and the informality of the transactions all create a ripe environment for corruption. The foreign migrant employment process is further complicated by the limited supply and high demand for jobs in receiving countries.

A tailored risk assessment is the first step in detecting and preventing human trafficking and forced labor in an extended global supply chain, as well as the FCPA exposure that such practices create. Companies should understand not only their product supply chain, but also the labor supply chain that feeds workers into those factories and farms. It is important to focus on high-risk countries where subsidiaries, franchisees, and top-tier suppliers or subcontractors have operations involving commodities, components, or services associated with human trafficking and forced labor. These abuses are complex, and their manifestation is frequently subtle and hidden—particularly where there are subcontractors, business agents, or labor brokers in the supply chain.

In order to assess the potential exposure to human trafficking and forced labor in their supply chain and the attendant FCPA risk, companies first need to understand the enabling or risk factors, such as a concentration of migrant labor from certain sending countries and the presence of labor brokers deep in the supply chain. Companies must also be vigilant in watching for red flags, such as excessive or above-market fees, or business conducted in countries with a significant reputation for corruption. Foreign Contract Worker risk assessments conducted by Verité for major global companies routinely uncover trafficking and labor abuses, particularly in Southeast Asia and the Middle East.

In order to adequately identify and evaluate the risk of liability under the FCPA, companies need to ensure that they trace the labor supply chain back to the source country from the facilities where workers are subjected to fees and deposits, passport retention, penalties for early termination, restricted movement, and other red flag practices. Holding foreign subsidiaries, franchisees, and suppliers accountable for the entire foreign-contract labor supply chain is the single most effective step a company can take to mitigate the risk of FCPA liability for corrupt practices associated with labor trafficking.

Supply chain transparency for companies with extended global supply chains is becoming increasingly important as consumers, stakeholders, and governments demand details of the systems and sources that deliver goods and services. This emerging regulatory regime converges with anti-corruption and anti-bribery compliance in a way that makes it vital for companies subject to the FCPA to incorporate labor trafficking and forced labor into their overall compliance programs.

Declan Croucher is a Director of Advisory Services at Verité, a Massachusetts-based international not-for-profit consulting, training, and research organization that has been a leader in supply chain social responsibility since 1995.