Director of Advisory Services, Declan Croucher, authored a must-read article for the latest issue of Compliance & Ethics Professional. Read it below and on the Compliance & Ethics Blog.
The charging of recruitment fees and expenses to migrant workers is the most significant contributor to the shameful ongoing presence of debt bondage, human trafficking, forced labor, or modern slavery in global supply chains. As companies come to grips with their responsibilities and applicable reporting requirements under emerging compliance regimes (e.g., the California Transparency in Supply Chains Act, the Federal Acquisition Regulation rules to strengthen protections against trafficking in persons in federal contracts, the UK Modern Slavery Act, and the Trade Facilitation and Trade Enforcement Act), the question of how to effectively detect and prevent these insidious and deeply entrenched abuses looms large.
Profiting from desperation
The reason this issue can be difficult for global companies to understand, much less solve, is that the traditional audit-led approach to social responsibility, which focuses on compliance with codes and regulations at the workplace, does not adequately address the money flows associated with the recruitment of migrant workers before they start work. The unpalatable truth is that the root cause is hiding in plain sight—the significant costs of labor migration and how those costs are allocated. The business model of many participants in high-risk global supply chains (e.g., foreign subsidiaries, franchisees, agents, suppliers, contractors) is frequently built on charging unskilled and low-skilled workers for their jobs. In this distorted labor market, where the legitimate, reasonable, and customary cost to recruit and deploy a single migrant worker from one country to another can be as high as the equivalent of $1,500, employers in competitive sectors (e.g., agriculture, manufacturing, hospitality, construction, services) knowingly transfer most, if not all, of the upfront costs of employment to desperate foreign migrant workers.
Specifically, employers do not pay sufficient professional services fees to the recruitment agents they use to procure workers, but allow those agents to recoup their fees and the significant legitimate expenses associated with international labor migration—such as government approvals and travel costs—from the workers. In many migration corridors, employers or their duly appointed recruitment agents also pay bribes or un-receipted fees to government officials to fraudulently approve required formal applications or facilitate discretionary decisions (e.g., the provision of foreign worker quotas, demand letter attestations, exit and guest worker visas, medical certifications, police clearances, work permits). Of course, the significant number of interactions with foreign government officials needed to facilitate the recruitment and deployment of foreign workers gives rise to additional risk. The nexus between corruption and trafficking for labor exploitation and the prospect of Foreign Corrupt Practices Act (FCPA) and UK Bribery Act violations have been well documented.
Many of these costs (i.e., the agent fees which should be paid by the employer, travel expenses, the cost of the myriad official approvals, and the recruitment-related corrupt payments) are invariably passed onto workers in the form of recruitment fees that violate international standards and laws and greatly exceed country-of-origin regulatory limits.
Verité’s experience is that the fees charged to workers range between $1,500 and $6,000 per worker, depending on the country of origin of the workers as well as the type and location of the job. The loans, at exorbitant interest rates that desperate migrant workers frequently take out to pay the recruitment fees to secure a job abroad, effectively subsidize their employer and directly contribute to their vulnerability to debt bondage, human trafficking, and forced labor. It can take workers anywhere from 1-3 years of employment to pay off these loans. During this period, the workers are essentially working for free—an improper benefit that accrues to their employer and indirectly to their employer’s customers or clients. For employers that need to deploy large numbers of foreign workers to their workplaces on a rolling basis, due to the limited duration of guest worker programs, the ongoing cost savings derived from the exploitation of migrant workers can be substantial.
Supply and demand
Supply chain participants are rarely inclined to be transparent about their recruitment business model and practices, because absorbing the true cost to recruit and deploy large numbers of migrant workers in competitive sectors will directly impact their competitiveness and profitability. These employers don’t necessarily consider their approach to the recruitment of migrant workers as contributing to modern day slavery, but rather a function of supply-and-demand or a way of doing business that is culturally acceptable in their operating environment.
Ironically, many of these employers willingly pay recruitment agent fees and the expenses associated with recruiting and deploying workers in skilled categories from the same countries as their unskilled or low-skilled workforce, using the same recruitment agents. In effect, they discriminate against the most vulnerable and desperate workers—those who can least afford to pay—colluding with unscrupulous recruitment agents and corrupt government officials to receive an improper financial benefit by either ignoring obvious red flags or by being willfully blind to what they know—or ought to know—is going on in their own operations or those of their partners.
Global companies that work with supply chain participants that do not pay all the legitimate and reasonable fees and expenses related to the recruitment and deployment of foreign workers, and ensure their recruitment agents conduct business ethically and lawfully, are unwittingly complicit in exposing workers to the risk of bonded labor and other exploitative practices. Overseas employers that hire migrant workers from most origin countries must execute a formal power of attorney, appointing a licensed recruitment agent as their legal representative in all transactions pertaining to the recruitment and deployment of workers. Expecting or hoping that the recruitment agents that have been appointed as the employer’s legal representative adhere to the patchwork of poorly enforced recruitment fee limits that exist in the worker’s countries of origin is not a sufficient safeguard, because the actual hard costs of migration are far greater.
Understanding how the costs of moving workers across borders are allocated can help end the inequitable distribution of those costs that is at the root of modern slavery in supply chains. Ensuring foreign subsidiaries, joint ventures, franchisees, suppliers, and contractors pay the legitimate and reasonable fees and expenses related to international labor migration and hold their recruitment agents accountable for complying with international standards and applicable laws— including ensuring workers are not charged for their jobs—are the most important steps companies can take to mitigate risk and effectively uncover and address the ongoing presence of trafficked workers, forced labor, and modern slavery in their supply chains.