Modern Slavery: Exploring Exploitation-type Activities underlying Illicit Financial Flows

Modern Slavery: Exploring Exploitation-type Activities underlying Illicit Financial Flows

Kathy Nicolaou-Manias

Yuchen Wu

April 2021

 “Exploitation-type activities are illegal activities that entail a forced and/or involuntary transfer of economic resources between two actors. Examples include slavery and exploitation, extortion, trafficking in persons and kidnapping.” Exploitation-type occur when one person or group benefit gainfully by exploiting another person and/or depriving that person in accessing his/her assets. When these benefits cross country borders, they represent Illicit Financial Flows (IFFs) commonly defined by many in the development world as “money that has been illegally earned, transferred or utilized”.

Besides exploitation type activities mentioned above, IFFs include other modes such as: tax evasion and other commerical malpractices; corruption; financing of terrorism; and black market activities which include organised crime. The Financial Action Task Force’s Asian Pacific Group (2018)  provides examples of the close linkages between modern slavery and other forms of illicit financial flows[1], including tax evasion and welfare fraud, corruption, and terrorist financing. For country governments to curb IFFs, it is necessary to design relevant and appropriate, targeted policy interventions, which require an understanding of the complex web of underlying illicit activities. Simply put this is a story about the economics of crime.  Modern slavery can take the form of human trafficking, forced labor, debt bondage/bonded labour, descent-based labour, slavery of children, and forced and early childhood marriage. This problem is pervasive in sectors where goods are mass produced at very low costs, often exploiting employees, who are in forced labour relationships with their employers. Their working conditions are dismal and inhumane, characterised by long working hours (and oftentimes sleeping, eating and working in the same space[2]), low wages, poor health and safety conditions, abusive management, no rights to organise themselves, disaster risks in some cases, and often linked to the exploitation of children.  Examples include the production of  flash fashion clothing and footware, cigarettes, tomatoes, seafood, conflict minerals such as tintalum, tin, platinum and gold, wine and grapes, sugar and toys. Modern slavery through forced labour or child labour, implies that these goods are illegally produced, exploit people and the environment, which results in unsustainable, uncompetitive and unethical production. Buying these goods and services means that we, as consumers, are complicit in contributing to modern day slavery and child labour.

It is evident that modern slavery is a pressing societal issue. According to the International Labour Organization (ILO) and Walk Free, “on any given day in 2016, 40.3 million people were victims of modern slavery, with 24.9 million people in forced labour and 15.4 million people in forced marriage”

To contexualise the aforementioned, we share an example below highlighting IFFs in the clothing sector linked to modern slavery.

Modern slavery in South Africa’s clothing manufacturing sector: A chance occurrence uncovered this problem in October 2019  

From 7 to 18 October 2019, while implementing the the International Labour Organisation’s Sustaining Competitive and Responsible Enterprises (SCORE) programme in the clothing manufacturing sector in the KwaZulu Natal area, in South Africa, we chanced upon a number of firms that exploit their employees and lock them into forced labour arrangements; yes, they are modern slaves. Unfortunately, this phenomenon is not new. There is evidence of modern slavery in the sugar production sector, and in the clothing manufacturing sector a decade ago, in the Kwa-Zulu Natal area.

In this case, a well-known clothing retailer’s multi-million rand design house, sources locally manufactured clothing items from “sweat shops” who exploited the cooperatives legal enterprise form to bypass the progressive labour relations laws that promote decent labour and minimum.  Cooperatives are a type of “organization that is both owned and controlled by its members, … These businesses are different from other types of companies, because they are formed and operate for the benefit of their members. In that sense, they are nonprofits.” These cooperatives are meant to benefit their members, which is why they are exempt from the minimum wage and basic conditions of employment. However, these “sweat shops” parade as cooperatives (on paper only) and have been set up for profit, exploiting their employees.

In the one factory, we found hundreds of Chinese employees squashed together in a confined space, eating and working in the same space. The number of people per square metre exceeds the occupational health and safety standards and the national building regulations. Moreover employees sleep in the same premises. They were hunched over their machines, working furiously till late, under tight deadlines that incur penalties from the design house if they are even half an hour late. With small profit margins, the pressure is on.

Other Chinese factory owners refused to let us onto their premises and subsequently pulled out of the SCORE programme, on the grounds that they had tight deadlines. We interviewed a few participating locally-owned SCORE clothing manufacturers, who confirmed that these cooperatives pop up and disappear once the law has caught up with them, only to re-establish themselves as a new cooperative under the name of a different family member. They confirmed that these cooperatives are in fact “sweat shops” and complained that they are being out-competed out of the market on price.

The large-scale retail chain can compete with China, through a third-party design house that contracts in the Chinese garment cooperatives that use modern slavery, while compliant local firms are progressively being squeezed out of the sector. Exporting these goods represents an illicit flow. It is not clear how such a large cohort of Chinese foreign nationals have come to be exploited in South Africa, undetected, while progressively destroying legitimate local producers, who are being outcompeted. The figure below illustrates what has transpired in the sector.

This case provides insights into how modern slavery is used in the production of garments resulting in IFFs while contributing to irresponsible, inhumane, unsustainable and illegal production and procurement. The effects of modern slavery are far reaching, linked to goods we use in everyday life including the food we purchase, the clothes we buy, the suppliers we choose, and the companies we invest in.

Source: Author’s Own

Policy perspective

Modern slavery, or exploitation-type activities, violate basic human rights and represents a key area of concern that is very relevant from a policy perspective. There are a few steps we need to consider in order to address this problem:

  • insights into the drivers, facilitators and enablers of modern slavery;
  • areas where further empirical research is required;
  • mapping out the linkages with domestic and global value chains in the (clothing) manufacturing sector that profiteer from modern slavery or child labour;
  • raise the political will and voice of the people by boycotting producers who endorse modern slavery either implicitly or explicitly thereby tackling IFFs more broadly.

Eradicating modern slavery in business operations and supply chains is gaining momentum globally. Recent legislation in the US (state of California), UK, Australia, France, and the Netherlands attempt to mitigate modern slavery through targeted transparency in the supply chain. Specifically, large businesses operating in these countries, are required to publish an annual statement outlining how they perform due diligences and take actions to reduce modern slavery risks in their business operations and across their entire value chain, promoting responsible and sustainable enterprise, ensuring corporate governance, where corporate entities under public scrutiny are required to ensure their supply chain is free from modern slavery. The ILO’s SCORE programme helps enterprises create more sustainable enterprise through the collaboration between employers and employees working towards a common objective, which is to promote competitiveness for the long-term sustainability of the enterprise.

However, transparency is not the panacea. The effectiveness of transparency policy is based on the right notion of accountability. While public scrutiny is high for some corporations, one concern is that sweat shops are likely to operate independently at ‘arms length’, through sub-sub-contracts, to the corporate entity that is under the spotlight.  The complexity of the supply chain also masks the true relationship between two companies, increasing the veils of opacity.

The figure below illustrates some measures where transparency and accountability mechanisms can be used by enterprises themselves, labour unions and bargaining councils, government and civil society to work together on a spectrum, starting from self-regulation and compliance, to the laws and regulations of a country through to the public pressure by civil society organisations to ensure firms act responsibly.

It is our responsibility to raise awareness regarding modern slavery, raise our voices and the political will of governments to tackle the scourge of this problem across the production value chain ensuring sustainable, ethical and competitive sourcing, procurement and production. This problem plagues many developing countries across the globe.


Source: Author’s Own

Reference list

Al-Dayel, N. and Mumford, A. (2020) ISIS and Their Use of Slavery.

International Labour Organization and Walk Free Foundation (2017) Global estimates of modern slavery: Forced labour and forced marriage. Geneva.

Kar, D. (2011). Illicit financial flows from the Least Developed Countries: 1990-2008.

OECD (2016) Trafficking in Persons and Corruption Breaking the Chain.

OECD (2020) Connecting the anti-corruption and human rights agendas.

Snyder, J., Gregor, K. S. and Cvetanovich, B. (2019) An Advocate’s Guide to Tax Issues Affecting Victims of Human Trafficking.

UNCTAD and UNODC (2020) The Conceptual Framework for the Statistical Measurement of Illicit Financial Flows. Vienna.


Reference list

[1] FAFT “has has brought granularity to indicators of suspected money laundering of the proceeds of human trafficking by separating human trafficking into three categories in line with the Palermo Protocol: human trafficking for forced labour, sexual exploitation or for the removal of organs.”

[2] This was witnessed by the author, first hand) in the South African Cooperative in the clothing sector, in October 2019

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