Slavery in the Supply Chain
Print Issue: December 2015
More than 21 million people are victims of forced and bonded labor worldwide—practices known as modern-day slavery. The vast majority of these victims work in the private sector, and they generate more than $150 billion in illegal profits every year, according to statistics compiled by the International Labor Organization.
This means that somewhere down the line, some of the food, clothing, and consumer products we purchase, and the sporting events we watch, may be tainted by real-life examples of forced labor practices. For example, nearly 1,500 migrant workers have died building a state-of-the-art soccer stadium in Qatar for the 2022 World Cup, and an estimated 4,000 migrant workers will die by the time the tournament begins, according to a report from the International Trade Union Confederation.
In the case of products, an international supply chain can be complicated and opaque. Sometimes slavery practices occur at a hidden point in the wider supplier web. Earlier this year, for instance, journalists traced instances of forced labor in Thai trawlers that provided feed products to a local Thai distributor, which ultimately supplied products found on supermarket shelves in the United States and Europe. An Associated Press investigative report found that laborers on the trawlers were paid almost nothing, forced to work 20- to 22-hour shifts with no days off, and were whipped with toxic stingray tails if they complained or tried to rest.
Abusive labor practices may also take less extreme forms, including deceiving workers over actual employment conditions, charging employees unreasonable recruitment fees, and confiscating or otherwise denying access to identity documents such as passports and travel passes. Such practices touch many sectors; migrant workers are recruited to work in industries ranging from agriculture and fishing to manufacturing and construction.
The problem is exacerbated by the demand for cheaper goods and faster production, which expands supplier networks so that it becomes harder and harder to trace the origin of materials through the supply chain. For international companies, this heightens the risk of sourcing commodities from suppliers with unscrupulous labor practices, which may pose compliance and safety issues.
Some governments are stepping up to address the problem. Last March, the Modern Slavery Act in the United Kingdom became Europe’s first legislation aimed at tackling modern-day labor issues, including forced and bonded labor. The Slavery Act requires companies to specifically disclose their efforts to combat modern-day slavery in their supply chains.
In the United States, the Federal Acquisition Regulatory Council (FAR Council), in accordance with the executive order Strengthening Protections Against Trafficking in Persons in Federal Contracts, issued a new rule on the subject earlier this year. The rule requires contractors and subcontractors performing work (worth more than $500,000) outside the United States to develop and maintain a compliance plan and to certify that, to the best of their knowledge, neither they nor any of their subcontractors have engaged in trafficking-related activities.
“As the largest single purchaser of goods and services in the world, the U.S. government has a responsibility to ensure that American tax dollars do not contribute to this affront to human dignity,” the White House said in a statement.
In Congress, Rep. Carolyn Maloney (D-NY) reintroduced the Business Supply Chain Transparency on Trafficking and Slavery Act of 2015 this summer. The bill, if passed, would require companies to file annual reports with the Securities and Exchange Commission disclosing their efforts to identify and address human rights risks in their supply chains. Similar legislation has been introduced in previous years, so chances of passage are still unclear. Still, “its reintroduction reflects a broader trend towards regulated transparency with regard to corporate efforts to address human rights-related risks in their supply chains,” writes Sarah Altschuller, an attorney and member of the Corporate Social Responsibility law practice of Foley Hoag, in a recent article on her firm’s website.
What should U.S. companies do to maintain their supply chain security? In a new report, James Swenson, head of operations and delivery for Thomson Reuters Enhanced Due Diligence services, lays out various screening and due diligence practices that businesses can take to proactively address potential human rights abuses.
In the report, Swenson recommends that businesses conduct risk assessments before working with new suppliers. To assist in this process, firms can use publicly available data to identify potential suppliers, distributors, and partners who could represent a heightened risk of forced labor practices.
One way to identify this is to use the country risk ratings issued by the U.S. State Department. The ratings are based on the country’s efforts to comply with minimum standards related to trafficking and modern-day slavery. Countries are placed into three tiers, with Tier 1 representing the highest level of compliance. In the most recent rankings, Tier 3 countries include Malaysia, Russia, Thailand, Saudia Arabia, and Zimbabwe.
In addition, the U.S. Bureau of International Labor Affairs publishes an annual list of goods and services prone to forced labor. In 2014, the report identified 138 products in 74 countries susceptible to modern-day slavery. Coffee, sugarcane, and tobacco were identified as the most prominent products affected by forced labor; the countries with the most industries affected included India, Bangladesh, the Philippines, Mexico, and Brazil.
Once risk is assessed, companies should apply levels of due diligence proportionate to the level of risk involved, Swenson recommends. Some due diligence best practices include: verifying the legal standing of the supplier, including review of registration or tax documents, which may provide audited financial statements; searching both mainstream and social media for a reputational assessment of the supplier’s track record; reviewing regulatory, litigation, and bankruptcy databases in the jurisdiction where the supplier is registered; and screening international watch lists such as the U.S. Office of Foreign Assets Control Specially Designated Nationals.
Finally, identifying the principals and possible shareholders behind the supplier is a critical component to any due diligence exercise. When researching individuals, available public records may vary across jurisdictions. But often, public records and company registration filings will provide enough detail to understand an individual’s corporate affiliations and directorships.
“Due diligence should be conducted on these individuals as well as the corporate entity,” Swenson recommends.