Bonded Labor Threatens Supply Chains
Print Issue: October 2020
During the coronavirus pandemic, medical gloves are in high demand, but U.S. Customs and Border Protection (CBP) barred imports of products made by subsidiaries of the world’s largest medical glove maker—Top Glove Corp., based in Malaysia—over suspected forced labor. CBP placed Top Glove and TG Medical on its detention order list in June 2020, issuing withhold release orders (WROs) that allow the agency to detain imported goods at ports of entry if the maker is suspected of using forced labor anywhere along its supply chain, according to The Straits Times. Two shipments—making up half of the company’s U.S. sales—were barred from entry into the United States.
“The WRO sends a clear and direct message to U.S. importers that the illicit, inhumane, and exploitative practices of modern day slavery will not be tolerated in U.S. supply chains,” the CBP’s detention order stated.
The labor issue in question centered around the issue of recruitment fees—frequently large sums of money paid by migrant workers to recruiters and labor brokers to find them work abroad. Once the migrant arrives in a new country, their debt from the recruitment fees and other tacked-on surcharges begins to accrue, and often their passports are confiscated to keep them from skipping out on debts. The lender can then exploit the debtor to repay the amount owed through wage garnishments, forced labor or services, sexual exploitation, or slavery for years. These bonded migrants can end up working for subcontractors or in service positions (including contract guarding services) along supply chains, often without the parent company’s knowledge.
According to estimates from the International Labour Organization (ILO), forced labor is one of the most prevalent forms of modern slavery worldwide. Despite being banned in international law and most domestic jurisdictions, the practice continues. Nearly 25 million people worldwide are still subjected to forced labor through human trafficking, 83 percent of which are exploited by individuals or enterprises in the private economy, generating approximately $150 billion in illegal profits every year, the ILO noted. Bonded labor—also known as debt bondage—is part of that equation.
According to the United Nations, “people in debt bondage end up working for no wages or wages below the minimum in order to repay the debts contracted or advances received, even though the value of the work they carry out exceeds the amount of their debts. Furthermore, bonded laborers are often subjected to different forms of abuse, including long working hours, physical and psychological abuse, and violence.”
Typical global supply chains carry a surprising amount of human trafficking risk, and no sector is immune, says Shawn MacDonald, CEO of Verité, a civil society organization promoting workers’ rights in global supply chains. Together, Verité and the U.S. Department of State Office to Monitor and Combat Trafficking in Persons produce the Responsible Sourcing Tool, which outlines resources, risk maps, case studies, and more to help organizations perform due diligence around trafficking risk and debt bondage rates.
The implications of human trafficking for businesses are multilayered, MacDonald says.
Reputational risk. As human rights and human trafficking issues attract more attention worldwide—whether from journalists, rights groups, or consumers—issues are more likely to be uncovered and scrutinized. Social media and widespread accessibility to the Internet have helped shine more light on human trafficking schemes and trends in developing economies.
In addition, as companies stake their reputations on ethical mission statements, downstream labor issues can undermine carefully cultivated corporate identities that drive recruitment—high-value employees are eager to work for companies with good social values and performance. Additionally, investors are using risk related to forced labor as a key social metric when determining which organizations to support.
“It’s increasingly good for business to show you are a good corporate citizen, so obviously exposure to human rights risks like forced labor calls that into question and can be a real risk to your brand image,” MacDonald notes.
Compliance risk. As experienced by Top Glove Corp., suspicion of forced labor can have serious financial repercussions. Under the U.S. Trade Facilitation and Trade Enforcement Act of 2015, customs enforcement agents can ban the import of goods made in whole or in part by forced labor. By placing a company on the WRO list, merchandise can be seized until the labor issue in question is investigated and resolved.
“Companies can weather public relations crises sometimes, and it doesn’t have a big effect on their business, but if Customs says you no longer can import this good from this country, that has a huge effect on business,” MacDonald says.
“Once people find these problems, the way that companies are making it right or mediating it is to pay money back to the migrant workers, who paid thousands of dollars to get that job,” MacDonald adds. “For the companies to get the WRO released, they are paying back millions of dollars to the workers.”
In the wake of the Top Glove Corp. decision this year, the second-largest medical glove manufacturer in Malaysia, Hartalega Holdings, announced in August that it would reimburse the recruitment fees previously paid by migrant workers to employment agents as part of its commitment to social compliance. The total cost of the reimbursements is estimated to reach more than 40 million Malaysian ringgits ($9 million) over the span of 24 months, The Straits Times reported.
Meanwhile, Top Glove said it had been bearing all recruitment fees since the beginning of 2019, but was still working to resolve fees paid by workers to agents without the company’s knowledge from before 2019. In a statement, the company said that “over the past few months, we have been working on this issue, which involves extensive tracing, to establish the correct amount to be paid back to our workers, on behalf of the previous agents.” But until U.S. Customs is satisfied, shipments to the United States are stalled.
“If there are migrants anywhere in our chain, whether it’s a potato field in Texas or a factory in Malaysia or a factory in Taiwan, whenever you get any country that attracts workers from other countries, there’s usually this risk of debt bondage,” MacDonald adds. “Because usually, unless you’re a white-collar professional in a Western country, you’re more likely to pay to get your job than to get the recruitment cost paid by the company.”
Beyond customs enforcement, organizations that work with the U.S. government also face Federal Acquisition Regulations (FAR) standards, and any misbehavior—including the use of forced labor—endangers contracts. Australia has similar regulations in place, and they are being considered in the United Kingdom, Canada, and parts of Europe, MacDonald says.
Connections to human trafficking—even through a third party like a subcontractor—can put an organization at risk of lawsuits and U.S. criminal statutes, such as the Foreign Narcotics Kingpin Designation Act or the Foreign Corrupt Practices Act, he adds.
“It’s kind of a perfect storm of types of violations and more accountability for companies,” MacDonald explains, likening due diligence around subcontractors’ forced labor risks to monitoring for product contamination risks deep in the supply chain. “Now, the way people are recruited—crossing borders and so on, very often involving debt bondage—is introduced as a problem throughout your supply chain.”
Despite increased attention to trafficking, labor trafficking comprises just 5 percent of total U.S. federal convictions and prosecutions of human trafficking, according to data from the 2020 Trafficking in Persons (TIP) Report from the U.S. Department of State. The report evaluates 188 countries’ progress in combating human trafficking based on three areas: prevention, protection, and prosecution. The 2020 TIP Report graded 22 governments higher than their 2019 ranking, but demoted 23 in its multitier system.
The lowest ranking—Tier 3—comprises Afghanistan, Algeria, Belarus, Burma, Burundi, China, Comoros, Cuba, Eritrea, Iran, Lesotho, Nicaragua, North Korea, Papua New Guinea, Russia, South Sudan, Syria, Turkmenistan, and Venezuela. Landing on the third tier places a country at risk of losing U.S. aid dollars until initiatives to counter human trafficking improve. Forty-four countries have been placed on a watch list in the second tier—signaling to their governments that unless initiatives improve, they are perilously close to being downgraded.
No country is immune to human trafficking, and improvement is always possible, the report noted. While the United States remains a Tier 1 country in the TIP Report, meaning that it complies with the minimum standards to eliminate trafficking, the report said that the United States “prosecuted fewer cases and secured convictions against fewer traffickers, issued fewer victims trafficking-specific immigration benefits, and did not adequately screen vulnerable populations for human trafficking indicators.”
Globally, there were 11,841 prosecutions for human trafficking in 2019, according to the TIP Report. Only 1,024 of those were related to labor trafficking, but this is a marked increase from 2018, when out of 11,096 prosecutions, only 457 were related to labor trafficking.
All in all, more than 110,000 human trafficking victims were identified throughout the world in 2019, the U.S. State Department found.