Modern Slavery and Financial Crime: Why Banks Can No Longer Treat These as Separate Issues

Modern slavery — encompassing forced labour, debt bondage, domestic servitude, and all forms of human trafficking for exploitation — is estimated by the International Labour Organization to affect over 49 million people globally. It generates vast quantities of illicit proceeds that flow through the banking system in ways that are frequently invisible to standard AML controls. For financial institutions, the convergence of modern slavery and financial crime is not a peripheral ESG concern: it is a core AML obligation, an emerging regulatory expectation, and — increasingly — a supply chain due diligence requirement that extends well beyond the traditional financial crime compliance boundary.

The financial architecture of modern slavery is diverse and adaptive. In forced labour contexts, proceeds take the form of business revenues generated by enterprises that use coerced or trafficked workers — appearing on the surface as legitimate commercial income from agriculture, construction, manufacturing, domestic services, or fisheries. The detection challenge for financial institutions is distinguishing businesses that exploit forced labour from those that do not — a task that requires sector-specific knowledge, supply chain awareness, and the ability to identify the financial red flags that differentiate exploitative operations from legitimate ones.

The intersection of modern slavery with Southeast Asian scam compound operations has added a new dimension to this challenge. Victims trafficked into scam compounds are simultaneously victims of forced labour and unwilling participants in financial crime operations that generate fraud proceeds. Financial institutions that detect and disrupt the financial flows from scam compound operations are, in effect, also disrupting modern slavery enterprises — demonstrating that financial crime detection and modern slavery response are not separate activities but deeply interconnected ones.

Regulatory, Enforcement, and Market Context

Regulatory frameworks explicitly addressing modern slavery and forced labour in financial crime contexts have expanded substantially. The UK's Modern Slavery Act 2015 requires large companies to publish annual transparency statements covering their supply chain slavery risk — an obligation that regulators and civil society increasingly scrutinise for substance rather than mere form. Australia's Modern Slavery Act 2018 imposes similar requirements, and the European Union's Corporate Sustainability Due Diligence Directive (CSDDD) creates binding supply chain due diligence obligations for large EU-regulated companies that encompass forced labour and modern slavery risk.

In the AML context, FATF's typologies on human trafficking and forced labour provide a detailed framework of financial red flags that financial institutions are expected to incorporate into their risk assessments and detection programmes. FinCEN's human trafficking advisory explicitly addresses forced labour financial flows alongside sex trafficking indicators. The UK's Joint Money Laundering Steering Group (JMLSG) guidance has been updated to incorporate modern slavery indicators across multiple sector-specific chapters, reflecting the FCA's expectation that regulated firms embed this awareness into their AML frameworks.

What the Data Is Showing

The Walk Free Foundation's Global Slavery Index estimates that G20 countries import over USD 468 billion worth of goods annually that are at risk of forced labour in their supply chains. The sectors with the highest risk concentrations — electronics, garments, cocoa, fish, and construction materials — are all sectors where major financial institutions have significant corporate banking and trade finance exposure. Financial institutions that have not systematically assessed their supply chain-linked financial crime risk are potentially financing forced labour at significant scale without detection.

Financial intelligence analysis from the UK's National Referral Mechanism and equivalent systems in Australia and Canada has documented clear patterns of financial exploitation associated with modern slavery victims: bank accounts opened in victim names and controlled by traffickers, payroll accounts used to receive wages before immediate extraction, and systematic patterns of debt bondage repayments that manifest as regular transfers to operator-controlled accounts. These patterns are detectable in transaction data but require specifically calibrated detection scenarios to surface.

Implications for Financial Institutions

Financial institutions need to integrate modern slavery risk assessment across two distinct but related dimensions. First, within their AML and financial crime frameworks: developing transaction monitoring scenarios calibrated to forced labour and trafficking financial flows, training analysts on modern slavery indicators, and establishing referral protocols to specialist teams and law enforcement when suspected cases are identified. Second, within their supply chain and ESG risk frameworks: assessing the forced labour risk exposure associated with their corporate customers' supply chains and integrating this assessment into sector-specific credit and relationship risk management.

The governance challenge is to ensure that these two dimensions — traditionally managed in separate teams with different mandates — are coherently integrated. Modern slavery sits at the intersection of financial crime compliance, ESG strategy, and reputational risk management. Institutions that create joined-up governance frameworks, with clear accountability and information-sharing protocols between compliance and ESG teams, will be better equipped to manage this complexity than those that treat it as a siloed obligation.

Conclusion

Modern slavery and financial crime are two faces of the same problem: the exploitation of vulnerable people for financial gain, enabled by access to the global financial system. Financial institutions that treat them as separate issues — one for compliance, one for ESG — will find themselves increasingly out of step with regulatory expectations, supervisory scrutiny, and the demands of sophisticated investors and customers who expect genuine action rather than performative statements. The opportunity is to build genuinely integrated programmes that contribute to the detection, disruption, and ultimately the reduction of modern slavery at scale.

Suggested Next Steps

• Develop a cross-functional governance framework that integrates modern slavery risk assessment across your AML compliance, ESG, and supply chain risk management functions — with clear accountability, information-sharing protocols, and joint reporting to senior management.

• Build dedicated transaction monitoring scenarios for forced labour and modern slavery financial flows, calibrated to the financial red flags documented in FATF typologies, FinCEN guidance, and JMLSG sector-specific chapters.

• Assess the forced labour risk exposure in your corporate banking and trade finance portfolio by sector, using Walk Free Foundation and US Department of Labor data to identify the highest-risk supply chain exposures.

• Review your Modern Slavery Act transparency statement to ensure it reflects genuine risk assessment and proportionate action — rather than a compliance formality — benchmarking against emerging regulatory and investor expectations for substantive disclosure.

Sources: ILO Global Estimates of Modern Slavery 2022; Walk Free Foundation Global Slavery Index 2023; FATF Human Trafficking and Forced Labour Typologies; FinCEN Human Trafficking Advisory; UK JMLSG Guidance; EU Corporate Sustainability Due Diligence Directive; UK Modern Slavery Act 2015.

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