The Intersection of ESG and Human Trafficking: Trends Impacting Industries Worldwide

The growing global trend towards corporate compliance in anti-human trafficking is largely driven by investors and customers seeking to use environmental, social and governance (ESG) considerations to inform their decision-making. Before ESG was a hot topic, many investors simply trusted companies to do the right thing. Now, they want to know that companies have effective anti-human trafficking compliance programmes to weed out and adequately report human trafficking in supply chains and working environments. And increasingly, customers are also demanding accountability in the ESG space. 

Another factor driving anti-trafficking compliance in businesses is the threat of litigation. In the US, recent high-profile civil lawsuits have been filed against financial institutions and hotel chains whose customers engaged in human trafficking. Although these lawsuits have had mixed success, the cost of litigation and the reputational harm to these defendants is causing banks and hotel chains to pay careful attention to their business practices and compliance programmes related to human trafficking. 

A third factor driving companies (and particularly manufacturers and producers) to focus on human trafficking is increased enforcement and legislative activity resulting from labour abuses, which are often the result of labour shortages. 

Taken together, these pressures on corporations have centred human trafficking within the larger ESG discussion and it appears that it will remain there for the foreseeable future.

ESG and Human Trafficking

ESG is defined as the “criteria that investors use to assess risks and opportunities relating to a company’s environmental impact, social responsibility, and corporate governance”. Under the ESG framework, both the social and governance criteria apply to human trafficking, which is the exploitation of people for forced labour or commercial sex. At its core, the social aspect of ESG is about human rights and equity. It considers issues such as working conditions, human trafficking and other human rights, product safety, and supply chain transparency. The governance aspect “affects the integrity of ESG disclosures, determining whether ESG indicators are ethically pursued and reported”. Anti-human trafficking compliance programmes, good labour practices, reporting requirements, and transparency in supply chains are all indicators relevant to governance.

Overview of Human Trafficking Laws

Today, most countries criminalise human trafficking. According to data-gathering platform, Statista, as of August 2020, 93% of countries had specific legislation on human trafficking – a significant increase over December 2003, when only 18% of countries had such laws.         

In the US, Congress enacted the Trafficking Victims Protection Act (TVPA) in 2000, the first comprehensive legislation to penalise human trafficking in the United States. The TVPA criminalised a list of offences constituting or facilitating human trafficking. Two of the statutes enacted in 2000 – 18 USC §§ 1589 (Forced Labor) and 1591 (Sex Trafficking) – are the crux of most federal criminal human trafficking violations in the US today.

Since 2000, the TVPA has been amended and expanded on multiple occasions by subsequent Trafficking Victims Protection Reauthorization Acts (TVPRAs). In 2003, Congress added a civil cause of action, which allowed trafficking victims to sue their traffickers for money damages in federal court. 

Presently, all US states and territories have enacted human trafficking laws.  State laws are distinct from the TVPA and differ depending on the state. In fact, certain conduct may violate both federal and state laws.

Human Trafficking and Financial Institutions

For financial institutions, the focus continues to be on red flags that indicate, or should indicate, that their institutions are being used to facilitate human trafficking. In 2014 and 2020, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued advisories discussing red flags and other financial and behavioural indicators of labour and sex trafficking, as well as financial institutions’ obligations under the Bank Secrecy Act (BSA). In 2021, the White House released its National Action Plan to Combat Human Trafficking, which emphasised the need to utilise as many federal regulatory and administrative tools as possible (including FinCEN’s) to disrupt human trafficking. In the same year, US financial regulators expressly stated that disrupting human trafficking and human smuggling is also a key government-wide priority in the US anti-money laundering and countering the financing of terrorism (AML/CFT) policy.

The banks and Jeffrey Epstein

Enhanced government enforcement is not the only pressure being brought to bear on financial institutions in connection with their potential role in human trafficking. Over the past 12 months, two of the world’s largest financial institutions have been forced to defend multiple civil suits arising in part, under the TVPA, for work performed for and services provided to Jeffrey Epstein. The banks faced suits by plaintiff-victims claiming the banks knew of, facilitated, and even participated in Epstein’s sex crimes by, among other things, allowing Epstein to access large quantities of cash to fuel his sex trafficking operation; assisting Epstein in structuring cash withdrawals to avoid having to report those transactions; and failing to report suspicious activity to FinCEN as required by the BSA. As to the latter, plaintiffs alleged that the banks were aware of transactions that raised a number of “red flags” indicating suspicious or illicit activities.   

While the banks were successful in defeating a number of the plaintiffs’ claims on a motion to dismiss, the federal court handling the cases found that the women sufficiently alleged facts supporting their claims of participation liability and obstruction claims under the TVPA and their claims of negligence. Moreover, the court granted a motion by the plaintiff-victims in the case to proceed as a class of women who were sexually abused or trafficked by Epstein during the time he maintained accounts at the two banks. Shortly after the court’s decision, the two banks settled with plaintiffs for USD290 million and USD75 million, respectively. Upon settlement, one of the plaintiff’s attorneys noted that, unlike any single person, the banks (as institutions with access to data) had a more detailed and comprehensive understanding of Epstein’s activities and an obligation to report that information to law enforcement – a key point likely to be pushed by other plaintiffs and their counsel seeking to hold banks accountable for their alleged roles in trafficking schemes. 

One of the defendants likewise entered into a settlement agreement with the government of the US Virgin Islands (USVI), which brought a separate suit against the banks. Following an investigation by the USVI attorney-general, the government alleged that the bank knowingly facilitated, sustained and concealed human trafficking and “financially benefited” from Epstein’s activities by failing to comply with federal banking regulations. Among other causes of action, the government of the Virgin Islands asserted claims under the TVPA, as well as a civil racketeering claim and a claim for failure to comply with federal banking law, in violation of the BSA. Again, central to the complaint was the allegation that the bank ignored red flags and concealed conduct by failing to file Suspicious Activity Reports (SARs). The bank denied these allegations but, following depositions in the matter, settled with the Virgin Islands for USD75 million in September 2023. 

While one of the financial institutions was able to defeat a fourth suit by shareholders alleging the bank and its directors ignored “red flags related to Epstein’s criminal activity” and failed to comply with “legal and regulatory reporting and compliance requirements”,  that action demonstrates the immense pressure that can be brought to bear on financial institutions, from all angles, when their platforms and services are utilised by persons engaged in human trafficking. 

There is no doubt that these civil lawsuits have put financial institutions on notice regarding the potentially significant exposure they face from customers who may be engaged in human trafficking. They demonstrate the need for financial institutions to be alert to the ways their services are being used to perpetuate trafficking, and to detect and report suspicious activity, consistent with effective compliance programmes and their obligations under the BSA. 

Human Trafficking and Hotels

The hotel industry has likewise seen a significant increase in civil lawsuits attempting to hold hotels liable for incidents of human trafficking. 

From December 2007 to February 2015, 1,434 cases of trafficking in hotels and motels in the US were reported to the National Human Trafficking Hotline. The COVID-19 pandemic has only exacerbated the issue, as traffickers use new hotel technology, like contactless check-in, which makes it more difficult to spot signs of trafficking. According to an analysis of the National Human Trafficking Hotline report, the reported incidents increased 59% in the hotel and hospitality industry between 2020 and 2021.

Historically, franchisers have emphasised the independent ownership of their hotels to insulate corporations from liability issues related to safety or crime.  However, in the 2008 TVPA reauthorisation, Congress added key language which allowed for “facilitator liability”. Under this reauthorisation, the TVPA as codified at 18 USC § 1595 was created to allow for the liability of an individual who does not directly traffic the victim but who “knowingly benefits, financially or... receive[s] anything of value, from participation in a venture which that person knew or should have known has engaged in an act in violation of this chapter”. 

Stated simply, the TVPA does not require defendants to have actual knowledge of the trafficking to be held liable, but rather, holds that defendants who “should have known” of trafficking activity may also be liable. States that have enacted parallel statutes to this provision are seeing an emergence of litigation against hotels under their state’s laws based on the “facilitator liability” theory. Plaintiffs allege that the hotel chains derived financial benefit from facilitating sex trafficking by providing a venue where traffickers could exploit victims despite signs of sex trafficking, and therefore, knowingly received a benefit from participation in a venture that defendants knew or should have known was engaged in sex trafficking.

In addition to the TVPA private cause of action, trafficking victims are also simultaneously pursuing common law causes of actions against hotels under theories of false imprisonment, negligent supervision and retention, negligent misrepresentation, intentional infliction of emotional distress (IIED), and negligent infliction of emotional distress (NIED), among other causes of action. Even where the courts have dismissed the TVPA cause(s) of action, the common law cause(s) of action often remain.

In 2023, a wave of lawsuits were filed against hotels across the US. To date, over 40 hotel chains are facing lawsuits accusing them of alleged involvement in facilitating human trafficking. While some cases have been dismissed for failure to demonstrate that the franchiser had in some way benefited by being part of a venture that it knew or should have known was engaged in trafficking, the reputational harm and cost of defence of these matters cannot be overlooked. Litigation typically takes years, and can be further delayed if the decision is appealed. In many circumstances, the victims are awarded undisclosed monetary settlements for dismissal of the lawsuit to avoid further exposure, liability, and reputational harm.

The monetary risk of a judgment may have significant consequences. For example, an Arkansas court awarded a victim-plaintiff a total of USD31,777,400. Specifically, the court awarded USD3,141,600 for a 13.2-year loss of life expectancy; USD714,000 for compensatory damages; USD2,500,000 for pain and suffering; USD6,355,000 for special damages plus pain and suffering; and USD19,066,800 in punitive damages. 

These lawsuits have profoundly shaken the hotel industry across the world. Hotels are now more aware than ever of their potential role in facilitating human trafficking and the severe legal consequences of failing to prevent such activities. The wave of cases in 2023 serve as a wake-up call for the industry, highlighting the risk of liability and the need for effective anti-human trafficking compliance programmes and reporting protocols.

Human Trafficking and Supply Chains

Finally, producers and manufacturers of goods are encountering a significant increase in enforcement related to their supply chains amid concerns about forced labour.

Estimations of the extent of forced labour have continued to rise over recent years. In September 2022, the International Labour Organization (ILO) issued a report that estimated 49.6 million people were living in modern-day slavery in 2021, of which, 27.6 million were in forced labour. Of the 27.6 million people in forced labour, 17.4 million were believed to be exploited in the private sector. These estimates are significantly higher than the ILO’s 2017 estimates. 

As the estimated number of human trafficking victims in forced labour is increasing, so are labour shortages. This is due, in part, to the  unprecedented disruption in employment and education caused by the COVID-19 pandemic, armed conflicts, and climate change. In September 2023, the US Chamber of Commerce reported that the US has lost millions of workers for various reasons. The chamber claims that there are “too many jobs without people to fill them.” The US is not alone in this. It is known that labour shortages and compounding crises typically result in a rise in forced labour, impacting many industries worldwide. 

To combat forced labour during these challenging times, some countries have significantly increased legislation and government enforcement relating to supply chains. These efforts aim to ensure that goods are not produced or manufactured as a result of forced labour. Laws and regulations involving supply chains are typically separate and apart from liability and remedies under criminal and civil anti-human trafficking laws. Supply chain enforcement efforts today are focused on geographical areas and industries known to be at high risk of forced labour.

The Uyghur Forced Labor Protection Act

For example, in the US, the Uyghur Forced Labor Protection Act (UFLPA) came into effect on 21 June 2022. It prohibits all importation of goods into the US made in whole or in part with forced labour from the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China. The UFLPA requires the government to apply a rebuttable presumption that goods produced in that region or that are on the UFLPA Entity List are made using forced labour and, therefore, are prohibited from entry into the United States under Section 307 of the Tariff Act, 19 USC § 1307. Consequently, importers must prove the goods were not the result of forced labour, and that the importer exercised due diligence to prevent the use of forced labour in their chain of supply. 

Since 21 June 2022, US Customs and Border Protection has detained more than USD1.3 billion worth of products at the border under the UFLPA. At least 679 shipments have been denied entry thus far, while, as of June 2023, nearly 2,000 were still being held for what could be a lengthy review process to determine eligibility. Imports from Malaysia, Vietnam, Thailand and Sri Lanka were also impacted. 

Child labour

Recent child labour scandals involving companies in the US have brought child labour to the forefront in supply chain investigations. Under US law, child labour is not necessarily forced labour. However, forced labour and other forms of exploitation are always a concern with child labour. Despite some state efforts to weaken their child labour laws, federal law enforcement agencies have significantly increased their enforcement efforts involving child labour. 

This year, the US Department of Labour and the Interagency Task Force to Combat Child Labor Exploitation (the “Task Force”) announced actions to hold companies accountable for violating federal child labour laws. This announcement came only five months after the creation of the Task Force.  As a result of the increased enforcement efforts, the government concluded 765 child labour cases, finding 4,474 children employed in violation of federal child labour laws, and assessed that employers owe more than USD6.6 million in penalties for the period 1 October 2022 to 20 July 2023.  The announcement also revealed that the federal government is currently investigating more than 700 open child labour cases. A news release in February 2023 by the US Department of Health and Human Services stated that the enforcement data it presented “demonstrates the department’s commitment to identifying and addressing the child labor violations more aggressively than in the department’s history.”

Actions in Canada, Mexico and Germany

Some countries have also enacted laws and regulations imposing reporting requirements and compliance standards related to supply chains. Most recently, Canada enacted the Fighting Against Forced Labor and Child Labor in Supply Chains Act (Bill S-211). The act, which takes effect on 1 January 2024, requires private-sector entities producing, selling, distributing or importing goods in Canada to disclose information on the measures taken to prevent and reduce forced or child labour risks in their supply chains. 

In Mexico, an Agreement on the Prohibition of the Import of Products Made with Forced Labor became effective on 18 May 2023. The German Supply Chain Act, which took effect on 1 January 2023, mandates that large companies operating in Germany must “ensure certain social and environmental standards are observed throughout their supply chain”. 

These increased enforcement efforts related to supply chains are expected to continue. Failure to impose effective anti-human trafficking compliance programmes and reporting protocols may have devastating results for the victims of human trafficking.