Regulation of Forced Labor in Supply Chains: Why It Matters and How Companies Can Comply

Regulation of Forced Labor in Supply Chains: Why It Matters and How Companies Can Comply

Client Alert

I. Corporate Obligations to Address Forced Labor in Supply Chains Relevant to You?

International organizations like the International Labor Organization, the Organization for Economic Cooperation and Development and the United Nations have long been engaged in efforts to prevent and remediate human rights violations resulting from corporate activity, including the use of forced labor in supply chains that provide goods and services. They have developed standards for responsible business conduct on environment, social, and governance metrics and then encouraged companies, through voluntary participation and information sharing, to adhere to them.

More recently, the United Kingdom, Germany, France, the Netherlands, Switzerland, the European Union, and Australia have proposed or passed legislation requiring companies, depending on the jurisdiction, to assess their human rights risk exposure, to report on the outcome of these assessments, and to remediate ongoing violations. The United States has revived dormant legislation and stepped up enforcement to combat forced labor; one state, California, requires reporting on forced labor risks.

In general, these initiatives require (or will require) companies to assess and combat the risk of forced labor in their supply chains. In some jurisdictions, companies are required to provide regulatory bodies, consumers, and investors with various degrees of detailed information about these efforts, including who is responsible for compliance, how risks are identified and mitigated, and how the companies respond to suspected forced labor violations. In others, companies must only certify to compliance. The range of companies (soon to be) subject to these laws varies across countries, but all regulations apply in some manner to both domestic and foreign companies who avail themselves of a given market. While regulators have given companies some time to transition into compliance, penalties for noncompliance in some jurisdictions may be steep, assessed at a percentage of worldwide turnover for larger corporations. In short, companies (and their advisers) domiciled or operating in any of these jurisdictions, particularly those operating across multiple countries, should educate themselves on the contours of these law(s) and start building an appropriate internal compliance framework. 

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