Modern Slavery: Taking Responsibility of the Supply Chain

There are an estimated 40 million victims of modern slavery worldwide[i]; a number higher than at any other point in history[ii]. 25 million of these victims are categorised as being in forced labour, whereby individuals are coerced to work through violence, intimidation and subtle means, including the retention of identity papers, contract manipulation and the charging of illegitimate employment fees, leading to debt bondage.

With the introduction of anti-slavery regulations around the world, there is increasing pressure on multinational corporations to ensure their operations and supply chains are free from forced labour. The complexity of supply chains creates a challenge, as oversight of suppliers, contractors and employees is often limited to the results of static, pre-announced audits.

As companies seek to improve transparency in their supply chains, blockchain offers a unique value proposition with its ability to record data immutably. Regulators can access a clear log on the provenance of goods and individual workers have a secure platform where they can store sensitive information.

Incentives for combating modern slavery

Aside from the ethical and reputational issues of association with slavery, companies have clear legal and regulatory incentives to eliminate forced labour from their supply chains.

Anti-slavery regulations, such as France’s Corporate Duty of Vigilance Law and the UK Modern Slavery Act, require that multinational companies assure reasonable due diligence in identifying forced labour within their supply chains.

France’s Law allows workers in a company’s supply chain, regardless of their status as an employee or contractor, to prosecute a the company for compensation. If litigation is successful, companies are required to compensate for the effects of harm that would have been prevented if due diligence measures were implemented.

In 2018, the NGOs, Sherpa and ActionAid France, filed a civil party lawsuit in reference to the France Corporate Duty of Vigilance act. The NGOs claimed that Samsung Electronics Co. Ltd and Samsung Electronics France had violated the fundamental rights of its employees in factories in China and South Korea[iii]. Though the case was dismissed twice by the Bobigny court, the NGOs are escalating the issue by filing a complaint with civil party to the High Court of Paris[iv]. While the outcome is yet to be determined, this case highlights the financial and reputational risks faced by organisations that are not compliant with modern slavery regulations.

In the UK, the first person was convicted under the UK Modern Slavery Act in January 2018, for trafficking women from Nigeria to Germany[v]. Despite the trafficking occurring entirely overseas, the UK citizen was sentenced to 18 years in jail. With more modern slavery cases submitted to the Crown Prosecution Service in 2017-2018 than ever before[vi], there is increasing awareness and risk of criminal prosecution for non-compliance with regulations.

Using blockchain to increase transparency in supply chains

To comply with modern slavery laws, companies require a clear and auditable data trail to serve as evidence of due diligence for regulators. This is a challenge for companies, who seek to gain visibility within complicated and dispersed supply chain networks.

Blockchain technology can provide transparency in supply chains by creating immutable records of product history and worker conditions.

Provenance, a blockchain company, completed a test study in Indonesia, to prove the fair payment of wages to coconut farmers[vii]. Provenance worked with the NGO, Fairfoods, to register the harvests of farmers through SMS and verify the payment of wages relative to their yields. Customers and downward suppliers were able to verify the chain of custody of coconuts using their smartphones.

Diginex has partnered with the Hong Kong-based business association The Mekong Club to develop a blockchain application, eMin, to help protect migrant workers from abuse[viii]. eMin includes a mobile application for workers to ensure employment contracts are maintained in their original forms, protecting themselves from the threats of contract substitution and modification. Companies can use anonymised data to detect slavery in their supply chains and direct their procurement practices.

Challenges with blockchain

Although distributed ledger technology can add transparency to supply chains, the value of output information depends on the quality of input, as per other data management architectures.

In the case of Provenance, Fairfoods acted as an overseer to the data input process, adding credibility and assurance that the data was legitimately submitted by farmers. The auditor’s role as a retrospective validator was replaced with Fairfoods’ presence as a live verifier of data inputs. This resulted in more granular outputs being delivered at an earlier stage than those from a traditional audit.

For a blockchain-based anti-slavery solution to scale, the need for a third party to monitor or review operations should be eliminated or minimised. In the case of a supply chain verification platform, workers should be able to register and input data without intervention and have access to communication mechanisms that circumvent employer data controls. A real-time grievance reporting platform would allow individuals to securely notify people with the power to investigate cases of forced labour.

Potential for good

As anti-slavery laws such as France’s Duty of Vigilance Law and the UK’s Modern Slavery Act gain adoption, companies face increasing pressure to identify and eliminate forced labour from their supply chains, to avoid civil and criminal litigation.

Blockchain technology can assist companies by adding trust, transparency and security to their supply chains, enabling them to comply with these regulations. In 2019, we expect to see more companies continue to pilot, implement and scale blockchain-based supply chain management solutions, to control their risk exposures.

About the Author(s): Mark Blick is Head of Government Solutions at Diginex, Chris Hambarsoomian is a Senior Associate in the Government Solutions team.

Theme: Making Societies More Secure

 

[i] International Labour Organization. (2017). Global Estimates of Modern Slavery. Retrieved August 20, 2018, from http://www.ilo. org/wcmsp5/groups/public/—dgreports/—dcomm/documents/publication/wcms_575479.pdf

[ii] Free the Slaves. (2018). Slavery Today « Free the Slaves. Retrieved August 20, 2018, from https://www.freetheslaves.net/about-slavery/slavery-today/

[iii] Rosemain, M., & Jarry, E. (2018, January 11). French NGOs file complaint against Samsung Electronics over… Retrieved December 14, 2018, from https://uk.reuters.com/article/us-samsung-elec-france-rights/french-ngos-file-complaint-against-samsung-electronics-over-deceptive-marketing-idUKKBN1F00HN

[iv] Sherpa. (2018, June 25). Sherpa and Action Aid continue actions against Samsung for misleading information over working conditions. Retrieved December 14, 2018, from http://corporatejustice.org/news/6599-sherpa-and-action-aid-continue-actions-against-samsung-for-misleading-information-over-working-conditions

[v] Marsh, S. (2018, September 20). ‘Voodoo’ nurse Josephine Iyamu has jail term increased. Retrieved December 14, 2018, from https://www.bbc.com/news/uk-england-london-45590145

[vi] Dearden, L. (2018, August 08). Modern slavery prosecutions rise by a quarter – but that only makes up a fraction of potential cases. Retrieved December 14, 2018, from https://www.independent.co.uk/news/uk/crime/modern-slavery-cases-uk-crime-prosecute-government-police-cps-a8483326.html

[vii] Provenance. (2018). Increasing financial transparency with proof of fair. Retrieved August 21, 2018, from https://www.provenance.org/case-studies/fairfood

[viii] Diginex. (2018, August 27). Diginex Partners with The Mekong Club. Retrieved September 3, 2018, from https://www.diginex.com/en/2018/08/27/diginex-partners-with-the-mekong-club/