Breaking the link between exploitative recruitment and modern slavery

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on OECD Insights on 3 October 2016.

Ahmed, from India, paid over 1,300 USD to a recruiter to accept a position as a driver in Saudi Arabia. However, upon arrival his employer confiscated his passport and refused to pay him although Ahmed worked 12 to 14 hour days. Benny, from the Philippines, invested over 2,000 USD in recruitment fees in exchange for the promise of a well-paid factory job in Taiwan. Upon arrival Benny’s wages were half of what was originally promised to him and after three years of working 12 to 17 hour days he barely managed to save enough to pay off his initial investment, returning home with no savings. These men’s stories are not unique. A quick scan of the website of Verité, an organization committed to promoting fair labour standards and combating exploitative recruitment practices, reveals many shocking histories of migrant workers who have been subject to abuse and fraud.

Exploitative recruitment of migrant workers often results in situations of de facto modern slavery. Recruitment can involve up to seven different middle men all charging a fee which means workers incur debts in the thousands of dollars before they even take up employment. Even in situations where employment is provided as promised, these upfront debts can mean that any wages a worker manages to save simply go back to paying off their debt to the recruiter.

Issues around recruitment of migrant workers have received particular attention in the context of the Gulf countries. In this region use of the Kafala system, a sponsorship-based employment system for migrant workers, is common. Under the Kafala system migrant worker’s legal residency is tied to their employer, giving employers power over working conditions and whether workers can change jobs, quit jobs, or leave the country. This system paired with exploitative recruitment practices leads to situations where workers, thousands of miles from home and severely indebted, are at the mercy of their employers.

However de facto modern slavery is by no means an issue limited to the Gulf region. Recent research produced by Verisk Maplecroft found that almost 60 percent of countries are at high risk of using slave labour.

slavery-index

Source: Modern Slavery Index, Verisk Maplecroft

In previous articles, I have highlighted some of regulatory approaches that nations are taking to combat modern slavery at home and throughout global supply chains, including through the UK Modern Slavery Act, trade regulations in the US prohibiting imports made with forced labour, and more generally regulations promoting increased due diligence and reporting across global supply chains to promote responsible business conduct including the EU Directive on non-financial disclosure. Additionally, earlier this year an executive order was a finalised by the Obama administration which prohibits companies from receiving US federal contracts if they recently violated labour laws. This regulation has provided even more impetus to companies to ensure that they are not linked to exploitative labour practices.

In addition, tools and standards are also being developed to target the issue of exploitative recruitment practices specifically. For example the Dhaka Principles for Migration With Dignity were launched in 2012 and provide a set of human rights based principles to enhance respect for the rights of migrant workers from the point of recruitment, during employment and through to further employment or safe return. The principles align with the UN Guiding Principles for Business and Human Rights and thus also with the OECD Guidelines for Multinational Enterprises.

Verité has developed a Fair Hiring Toolkit which provides targeted guidance around recruitment issues for various actors along the supply chain including for brands, suppliers, governments, advocates, auditors, and investors. This tool kit includes a list of red flags with regard to recruiter-induced hiring traps. For example one red flag is long ‘’supply chains’’ between the worker and employer in terms of intermediaries used in the hiring process and degrees of separation such as language barriers, cultural and social differences, and geographical distances.

Brands are also taking initiative to combat exploitative recruitment processes. Earlier this year five of the world’s largest multinationals, the Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever, launched the Leadership Group for Responsible Recruitment. This initiative focuses on promoting ethical recruitment, specifically through recognizing the employer pays principle. Under the employer pays principle, workers are never responsible for their own recruitment fees.

According to the Ethical Trading Initiative 71% of companies suspect the presence of modern slavery in their supply chains. Thus it is important to promote human rights due diligence that addresses recruitment issues throughout supply chains. In this regard the OECD has developed detailed guidance on carrying out supply chain due diligence in several sectors based off of the general principles of the OECD Guidelines for Multinational Enterprises. For example the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in supply chains of minerals including forced labour in the context of artisanal mining. This Guidance is now the leading standard for avoiding child and forced labour in mineral supply chains and has been integrated as an operating requirement in the DRC, Rwanda and Burundi.

The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the context of the Thai shrimping industry as well. Additionally, the OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced labour. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories.

Resources to help businesses identify responsible recruitment agencies are also needed. This has been one of the objectives behind the International Recruitment Integrity System (IRIS) an initiative of the International Organization for Migration. As part of its principle activities IRIS is planning to develop an accreditation framework under which members can be recognized as fair recruiters. This will be based, among other criteria, on the fact that no fee is charged to job seekers, worker’s passports of identity documents are not retained and there is transparency in labour supply chains.

A strong relationship exists between exploitative recruitment practices and forced labour. Breaking this link through promoting ethical recruitment will be very important given the vast scope of the issue as well as increasing regulation seeking to prevent these practices.  The initiatives discussed in this article provide promising ways forward. In order to effectively eradicate abusive recruitment practices companies should engage in supply chain due diligence processes which take into account these risks. Commitments to the ‘’employer pays’’ principle must be scaled up. Companies faced with significant risks with regard to these issues should follow the recommendations of the Leadership group for Responsible Recruitment and use the resources being developed through the IRIS initiative.

Useful links

OECD Guidelines for Multinational Enterprises

OECD CleanGovBiz initiative

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Tackling modern slavery in global supply chains

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was original published on the OECD Insights blog on March 11, 2016.

The recent migrant crisis paired with shocking exposes of labour issues in global supply chains has heightened public attention to modern slavery, forced labour and human trafficking. Children working in cobalt mines for the Apple and Samsung supply chains, Syrian refugees working under terrible circumstances for garment supply chains in Turkey, Rohingya refuges working as slaves in the Thai fishing industry and North African migrants working in agriculture in Italy and Spain.

The International Labour Organization estimates that 21 million people are victims of forced labour, of which 44% are migrants. In total, forced labor generates an estimated $150 billion in illegal profits every year. A recent ETI survey found 71% of companies suspect the presence of modern slavery in their supply chains.

In response, a number of binding regulations regarding modern slavery in supply chains have been introduced. On an international level, the ILO has adopted the Forced Labor Protocol that requires States to take measures regarding forced labor. Domestically, the California Transparency in Supply Chains Act of 2010 is intended to ensure consumers are provided with information about the efforts to prevent and eradicate human trafficking and slavery from their supply chains. President Obama also launched a far reaching executive order to avoid human trafficking in federal contracts and passed a law allowing for stronger enforcement of the Tariff Act of 1930, which aims to block the import of products to the US produced using child labour.

Currently two lawsuits related to slave labour in supply chains of Thai shrimp are pending against well-known multinationals in US federal courts. Likewise earlier this year the US Supreme Court declined to hear an appeal for the dismissal of a lawsuit alleging that three large multinational enterprises aided and abetted child slave labor on cocoa plantations in Africa.

The recent UK Modern Slavery Act applies to all companies that do any part of their business in the UK if they have annual gross worldwide revenues of £36 million or more each year. These companies have to publish an annual slavery and human trafficking statement. The OECD Guidelines for Multinational Enterprises are referenced in the statutory guidance of the Act, noting that “whilst not specifically focused on modern slavery, they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.’’

The OECD Guidelines are recommendations to companies backed by 46 adhering governments and recommend that companies carry out supply chain due diligence to identify, prevent, mitigate and account for all adverse impacts that they cover, including child labour and forced labour. The OECD has developed more detailed guidance on how these expectations can be responded to in specific sectors. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in the minerals supply chain including forced and child labour in the context of artisanal mining. The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour and child labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the Thai shrimping industry as well. The OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced and child labor. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories and cotton fields.

Although the OECD Guidelines are a non-binding mechanism they are accompanied by a unique grievance mechanism, the National Contact Points (NCPs). NCPs in the 46 countries that adhere to the Guidelines facilitate dialogue and mediation with companies who allegedly do not observe their recommendations. Several issues regarding forced or child labor in supply chains have been brought to the NCP mechanism and some have resulted in successful outcomes.

For example, in 2011 complaints were submitted to the NCP mechanism regarding sourcing of cotton from Uzbekistan cultivated using child labour. NCP mediation led to several agreements with companies involved in sourcing the products as well as heightened industry attention to this issue. In a follow up to the NCP processes several years later the European Center for Constitutional and Human Rights (ECCHR) concluded that the submission of the cases had encouraged traders to take steps to pressure the Uzbek government to end forced labour, although company commitment and media attention around the issue diminished over time. Nevertheless the report also noted that the NCP cases triggered investment banks to monitor forced labour issues in Uzbekistan in the context of their investments.

Other NCP cases, while not resulting in agreements between the parties have led to statements determining that certain companies were not observing the recommendations of the OECD Guidelines in the context of forced labour impacts, resulting in reputational harm to those enterprises (e.g. see DEVCOT) . Currently the Swiss National Contact Point is overseeing mediation between the Building and Wood Worker’s International (WWI) and FIFA regarding forced labor issues in Qatar. The results will have important implications for global sporting events and for managing risks of forced labour in large scale infrastructure projects.

Companies themselves have been proactive in addressing these issues. For example Nestlé, despite currently being subject to a lawsuit related to slave labour in its supply chain, participated in and released a report developed with the non-profit organization Verité which identified labour abuses in its supply chain with regard to Thai-sourced seafood.  Within the report the company outlined plans to tackle the problem, and notes that other companies that do business in this sector likely face the same risks.

Several MNEs also participate in the Shrimp Sustainable Supply Chain Task Force set up in 2014 by retailers such as Costco. This brings together manufacturers, retailers, governments and CSOs to conduct independent audits on Asian fishing vessels to ensure seafood supply chains are free from illegal and forced labour. The first round of audits is expected to be complete by July 2016.

In February this year, H&M asked all of its suppliers to sign an agreement prohibiting the use of cotton from Turkmenistan and Syria, on pain of termination in order to avoid sourcing of cotton from ISIS controlled territories, produced through forced labour. H&M also terminated a sourcing relationship with a Turkish supplier after discovering a Syrian migrant child working in its factory, responding to documented abuses against Syrian refugees in the Turkish textile industry.

Labour issues in global supply chains present a serious and pressing problem, therefore it is encouraging to see they are being taken seriously. In addition to regulatory approaches non-binding mechanisms such as the OECD Guidelines, accompanied by the NCP system, and industry initiatives have resulted in important progress and provide alternative models for managing forced labour risks throughout global supply chains. While litigating these issues can be a forceful tactic in bringing companies to account, non-judicial grievance mechanisms can provide a more affordable and more accessible platform for tackling forced labour issues.

In the context of modern slavery, all stakeholders must step up their efforts. Governments should promote due diligence in global supply chains among their companies as outlined in the OECD Guidelines and its related industry-specific instruments. Civil society can continue to be instrumental in reporting upon and exposing these issues and furthermore should rely on the NCP platform for reaching resolutions on supply chain issues with MNEs. Finally, as the current migrant crisis will last many years, companies should conduct heightened due diligence to ensure that they are not linked to forced labour throughout their supply chains, particularly in contexts with large migrant populations.

Legislation on responsible business conduct must reinforce the wheel, not reinvent it

Global Forum RBCThis article by Prof. Roel Nieuwenkamp was originally published on OECD Insights on April 15, 2015. 

The global economy has evolved at an impressive rate over the past several decades. Supply chains spanning dozens of countries are a common feature of businesses large and small. However, global regulatory frameworks have largely not kept pace with these trends. Rule of law remains weak in many developing countries and significant uncertainty and enforcement issues continue to exist in the context of transnational litigation and arbitration.

Some international instruments, such as the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) and the UN Guiding Principles for Human Rights and Business (UNGPs) have been important tools for filling these regulatory gaps. For example the OECD Guidelines establish an expectation that businesses behave responsibly throughout their supply chains, not just within their direct operations, extending to activity in potentially institutionally weak contexts where international standards and domestic laws may not be adequately enforced.

Recently domestic law has also begun to follow suit in this regard by introducing legally binding obligations. Section 1502 of the US Dodd-Frank Act represents one of the first examples of legislation incorporating due diligence regarding human rights along the supply chain. Section 1502 provides that companies must report on whether they source certain minerals (tin, tantalum, tungsten and gold) from conflict areas. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas which was adopted as an OECD Recommendation in 2011 was the first instrument to define responsibilities in this context and is explicitly referenced in section 1502. Currently the EU is considering introducing similar obligations in a proposal aimed at regulating the import of conflict minerals into the EU. The proposed initiative will go through three separate reviews within the EU Parliament before being submitted to the EU Council level later this year.

Another example in the extractives sector where non-binding initiatives have acted as the harbinger for binding law is in the context of revenue transparency. The Extractive Industry Transparency Initiative (EITI), founded in 2003 was one of the first efforts to encourage government and private sector reporting on revenue streams of extractive operations as a strategy for battling corruption. Section 1504 of Dodd Frank, passed in 2010, requires that companies registered with the Securities and Exchange Commission (SEC) must publicly report how much they pay governments for access to oil, gas and minerals. The EU has since mandated similar obligations through Accounting and Transparency Directives and Norway and South Korea have expressed interest in doing the same.

In Drilling down and scaling up in 2015, I mentioned that the trend of hardening of soft law was among the top 5 issues to watch in RBC for 2015. I also noted that the UK, Switzerland and France had proposals in the pipeline to make due diligence regarding aspects of RBC mandatory. Since January, interesting progress has been made on these initiatives.

The Swiss motion, which proposed mandatory human rights and environmental due diligence for Swiss corporations was recently narrowly voted down in the Swiss Parliament. The deciding vote was 95 against and 86 in favour. In response to this result, the Swiss Coalition for Corporate Justice has announced that it will begin collecting signatures for a popular initiative on the proposal. If they gather 100,000 signatures in 18 months, the measure will be put to a binding public referendum.

The UK Modern Slavery Act was approved and enacted into law in March of this year. This act provides that commercial organisations must prepare a slavery and human trafficking statement annually detailing, among other matters, their due diligence processes in relation to slavery and human trafficking in their operations and supply chains.

The broadest scheme of the three remains the French legislative proposal which aims to mandate supply chain due diligence in accordance with the OECD Guidelines for Multinational Enterprises, thus covering a comprehensive range of RBC issues. Under the law French companies employing 5,000 employees or more domestically or 10,000 employees or more internationally would be responsible for developing and publishing due diligence plans for human rights, and environmental and social risks. Failure to do so could result in fines of up to 10 million euros.

An amended proposal approved by the French National Assembly will now be sent to the Senate, which might turn it down. However, in this case the National Assembly could still overrule the Senate. My assessment is that the proposal is likely to be adopted.

If such a law is passed in France there is speculation that it could generate spillover effects within the EU. The rapporteur for this proposal, Dominique Potier, has indicated that he will push the European Commission to develop a EU directive along similar lines.

The move from soft to hard law is a concern for many businesses. However, when it concerns the more severe issues of responsible business conduct, the jump between the two is not that high. Many companies already have due diligence systems in place. This means that the playing field for the more progressive companies will be levelled. That was one of the reasons why many British businesses supported the Modern Slavery Act. In addition, the UN Guiding Principle 23(c) already provides specific guidance on how companies should manage the risks of the most severe impacts; it says that businesses should “Treat the risk of causing or contributing to gross human rights abuses as a legal compliance issue wherever they operate”.

Another concern that businesses may have is that all these proposals will create a mess of different hard and soft standards. A proliferation of obligations (national, regional and international) has the potential to generate regulatory disarray and create challenges for businesses in navigating their obligations.

Uniformity and clarity around obligations and expectations will be important for establishing a level playing field for business. A large imbalance or contradictions in obligations regarding due diligence or reporting across jurisdictions may unfairly penalise companies operating in multiple jurisdictions or subject to more onerous standards. In ensuring that standards are aligned, administrative burdens for business will be eased and competitive risks will be mitigated.

Additionally such laws must be drafted carefully in order to be practical and fairly enforceable. Presently the language included in both the French legislation and UK law is highly general and therefore the obligations under the law remain somewhat abstract.

In order to ensure that such regulation is realistic, reasonable and effective, the regulations and guidance that will accompany these laws should be developed on the basis of carefully drafted non-binding standards, such as the UNGPs and the OECD Guidelines. They will also need multi-stakeholder input. In the context of the OECD, all due diligence guides interpreting the expectations of the Guidelines are developed in consultation with industry, government, civil society and worker organisations. This process has ensured that recommendations included in the guidance are endorsed by businesses, the ultimate users of the guidance, and that they are ambitious yet reasonable. Additionally, the role of non-binding instruments, as well as the organisations that crafted and implemented them should not be overlooked. The UN and OECD will be important sources of guidance on these issues.

Legislative proposals related to existing international instruments should not seek to reinvent the wheel, but to reinforce it. Existing instruments that are widely recognised and proven to be effective and reasonable should represent a foundation for their legally-binding counterparts.