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How accountants can help uncover modern slavery

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You might think that, terrible though it is, there is nothing you can do to help stop modern slavery. But, as shown in a new FRC review, due diligence and anti-money laundering procedures are crucial in the fight.

3rd May 2022
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You might be wondering why an article aimed at accountants is considering the topic of modern slavery, the illegal exploitation of people for personal or commercial gain. Hopefully, it’s not that any of you are victims, but it’s about what accountants can do to mitigate the risk of modern slavery occurring. Specifically, accountants and auditors have a role in ensuring that appropriate disclosures are made and are often in a position to make sure the board of directors pays sufficient attention to the risks. If we are in practice, we also have a role in terms of the anti-money laundering (AML) procedures that we operate, which can help identify suspicions of modern slavery. 

It is perhaps no surprise then, given the accountant’s role, that the Financial Reporting Council (FRC) has commissioned a review of Modern Slavery Reporting Practices in the UK, to further consider points raised in its annual Review of Corporate Governance Reporting

Staggering amounts

Modern slavery is estimated to globally generate US$150bn annually. There were 8,730 offences recorded by police in 2020 in England and Wales, an increase of 5% on the previous year. Overall these are staggering amounts, and the unfortunate reality is that modern slavery has been found in all major sectors of the economy. While it is criminals who drive this activity, businesses with poor governance practices can make it easy for them to succeed in the perpetration of this awful crime. 

Businesses with a turnover of over £36m must write an annual statement setting out the steps they take to address the risk of slavery, both in their own operations and in their supply chains. As you might imagine, it may be relatively easy to ensure there is no modern slavery in your own business, but your supply chain is potentially a much trickier thing to deal with. 

The headline finding from the FRC Report was that both modern slavery statements and annual reports, when talking about the risks and opportunities to the business (under s.172 reports), lacked the information for shareholders and other stakeholders to make informed decisions. Turning first to the modern slavery statement, this should cover the following six areas:

  • Policies
  • Structures
  • Due diligence
  • Risk assessment
  • Training 
  • Effectiveness 

However, one in ten companies did not provide a modern slavery statement at all and only a third of the statements that were provided were clear and easy to read. In particular, the vast majority of reports were solely backward-looking, with only a few identifying emerging issues or long-term strategy. This is especially a worry at a time when the upheavals produced by the war in Ukraine could easily provide an opportunity for criminal gangs engaged in modern slavery to exploit individuals wishing to escape the conflict.

Focusing attention

The reason for the reporting responsibility is to focus boards’ attention on the risks of modern slavery. While our natural reaction to any slavery is shock and horror, companies will also bear the brunt if they are found to have been negligent in dealing with this risk. Take Boohoo, which was buying products from factories where workers were allegedly being paid illegally low wages and working in awful conditions. While Boohoo is not directly responsible for the working conditions of their supplier, the allegations in headlines were far from helpful. So boards should not only ensure they are complying with their reporting responsibilities, but also that they truly consider where modern slavery could occur and take appropriate measures to mitigate the risks. 

For accountants in practice the risks surrounding businesses that might effectively operate with slave labour are greater. Practitioners have a duty to undertake due diligence on clients (CDD) and report any suspicions of money laundering activity, with criminal, as well as regulatory, penalties if they fail to do so. Modern slavery will always generate proceeds of crime as the businesses or individuals involved will be making savings on wages. The next question then, is what might be the signs that modern slavery is taking place at a client’s or within their supply change? 

Indicators to watch for

The National Crime Agency has a list of indicators under headings including business patterns, high-risk sectors, unusual business activity, unusual payment systems or financial flows and workforce profiles. The items listed are extensive, but some key points to watch for might be:

  • Sectors at risk, such as agriculture, personal service (nail bars and the like), cleaning, construction, maintenance, and transport and freight companies
  • Low staff or National Insurance costs
  • Round-sum salaries, or everyone getting paid the same for different work
  • Extended family involvement
  • Business output not proportionate to staffing levels
  • Businesses on the brink of insolvency (as they are vulnerable to manipulation by criminals)
  • Abuse of client accounts.

The things to watch out for from a human perspective include (according to the Chartered Institute of Environment Health):

  • Evidence of a workplace being used for accommodation
  • Workers are distrustful of authorities
  • Workers look uneasy, unkempt or malnourished
  • Signs of psychological trauma
  • Untreated injuries
  • Evidence of control over movement, such as arriving and leaving in groups
  • Signs of substance misuse
  • Workers cannot give a home address.

All of this might seem quite theoretical though, so the ICAEW, together with HMRC, has produced a film, All Too Familiar. The film seeks to highlight why CDD is so important and how accountants need to be alert to signs of money laundering and to raise the alarm by making suspicious activity reports when needed. 

Monty Python might have stereotyped accountants as ‘dull, dull, dull’, but we know that’s not true and it’s definitely not dull if we can help to stop modern slavery. So next time you’re thinking that AML procedures or statements on modern slavery are a bit of a drag, remember that you might end up helping a trafficked person to freedom or preventing slavery in the first place.

Replies (2)

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ghm
By TaxTeddy
03rd May 2022 14:22

A very thoughtful article.

Can I add that any firms considering unpaid internships might like to read this - https://smallbusiness.co.uk/unpaid-internships-akin-modern-day-slavery-2...

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By GeoffK
04th May 2022 12:20

Thank you Julia for highlighting this issue and encouraging action!

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