Leveraging existing compliance programmes to address US anti-forced labour laws

March 2023 | SPOTLIGHT | LABOUR & EMPLOYMENT

Financier Worldwide Magazine

March 2023 Issue

In recent years, the business and human rights law landscape has drastically evolved, as well-accepted soft law principles, based in the UN Guiding Principles on Business and Human Rights (UNGPs), have been crystallised into hard law. Various jurisdictions around the globe have implemented or are implementing human rights-focused laws which place additional requirements on companies. In the US, human rights enforcement has been most prevalent by way of the US’s prohibition of goods made with forced labour. In response to these emerging frameworks, and an observed increasing interest by companies to institutionalise their commitment to respect human rights, companies are prioritising reframing their compliance programmes quickly and effectively account for human rights risks and are dispensing appropriate and adequate information to internal and external stakeholders on these changes to the company’s compliance programme. However, instead of companies attempting to create a separate framework for respecting human rights, or revamping their entire existing programmes, many companies are leveraging compliance principles already embedded within their programmes, and as a result, best practices have emerged on how companies can effectively leverage their compliance programmes to reflect the company’s commitment to respecting human rights through some enhancement, rather than drastic shifts.

US anti-forced labour laws

US forced labour enforcement has been one of the most significant developments with respect to human rights enforcement over the past several years, and it impacts companies around the globe. The US has long prohibited the import of goods mined, produced or manufactured wholly or in part by forced labour, including forced or indentured child labour. Enforcement of US anti-forced labour laws has steadily increased since 2016, when Congress removed a loophole which allowed for goods made with forced labour to enter the US if they were not elsewhere made in quantities large enough to meet US consumptive demand. Consequently, US Customs and Border Protection (CBP) ramped up detentions of goods allegedly made with forced labour, using withhold release orders (WROs), which was initially CBP’s primary mechanism to enforce the forced labour prohibition. This enforcement further increased with the passing of the Uyghur Forced Labor Prevention Act (UFLPA) in December 2021. The UFLPA came into effect in June 2022 and, since then, companies have been working hard to meet CBP’s demands to ensure that their products are not seized or excluded from entry into the US.

One complaint echoed by many companies that import goods into the US is that CBP requires companies to meet a high, virtually unattainable, threshold for their products to be released, if detained for forced labour reasons. CBP has required specific evidence, tracing a product’s supply chain back, often to the raw material, to demonstrate that goods were not made with forced labour (and in the case of the UFLPA, also that the product was not made in a prohibited region, or by an entity prohibited under the UFLPA’s Entity List). Rarely do companies have such detailed documentation about their upstream suppliers on file and often companies do not have adequate supply chain visibility to attain these documents. In response, companies are making programme enhancements to be able to attain this documentation, and to decrease the risk that shipments will be flagged for detention, avoiding the necessity of obtaining these documents in the first instance. CBP has provided indications that companies should be creating these programmes. For example, CBP has released guidance on supply chain due diligence and has issued forced labour-related best practices, centralised around a robust compliance programme, for importers that are part of CBP’s Customs Trade Partnership Against Terrorism (CTPAT) voluntary trade compliance programme.

In addition to forced labour, human rights enforcement is evidenced in other areas of US law, such as sanctions and environmental, social and governance (ESG) related disclosure regulations. These increasing enforcement risks, in addition to various mandatory human rights due diligence regimes emerging across many jurisdictions around the world, have led companies to take a hard look at their compliance programmes and treat human rights as a core legal compliance risk.

A strategy for developing compliance frameworks

Companies interested in documenting their commitment to respecting human rights (whether or not due to the current enforcement atmosphere) root their efforts in the UNGPs.

The UNGPs, in many respects, are consistent with the 10 Hallmarks of an Effective Compliance Program, developed by the US Department of Justice (DOJ) and the SEC. Therefore, many companies already have these key components in place. The UNGPs’ operational principles focus on a policy commitment to respect human rights, combined with risk assessment and due diligence to address human rights risks and adverse impacts. While the UNGP framework can be applied to all of the hallmarks of an effective compliance programme, focusing on how the UNGP framework applies to codes of conduct, policies and procedures, risk assessments and third party due diligence is important because there is opportunity to account for a broader range of stakeholders, including rightsholders, suppliers and other business partners, which are important to human rights risk management. Rather than focusing on creating a new framework for how a company will address its responsibility to respect human rights and increasing risks associated with not meeting that responsibility, companies are leveraging compliance frameworks that they are already familiar with in the context of their compliance programmes.

Some of these hallmarks are key candidates for enhancement in order to respond to human rights-related risks, as outlined below.

Code of conduct and policies and procedures. To begin, companies are enhancing policies and procedures to account for human rights-related issues. For example, some companies are revising their codes of conduct to include more explicit references to their commitment not to use forced labour, and to respecting human rights by calling out specific references to the UNGPs and cross-referencing their code of conduct in their human rights policy. Companies are supplementing changes to their codes with updates to key policies and procedures, such as human rights and procurement policies, supplier and licensee codes of conduct, and responsible sourcing procedures. By doing so, companies are creating a framework to help ensure that employees and business partners are obligated to comply with the company’s commitment to respect human rights, and can use these policies and procedures as a catalyst to foster communication with suppliers, thereby decreasing their risk of detention by CBP for forced labour-related issues.

Risk assessment. Another common programme component is risk assessment. The UNGPs call upon companies to identify and assess any actual or potential adverse human rights impacts implicating the company. Companies are enhancing their already existing processes for risk assessment to account for assessing whether certain suppliers within their supply chains pose forced labour risks; this may take the form of broadening the scope of already-existing mechanisms for risk assessment, such as adding human-rights focused inquiries and engagement with a broader range of stakeholders such as workers and community members. In identifying human rights risks, consistent with the UNGPs, companies will inherently be assessing forced labour risks; this process can be supplemented with further inquiry into which specific suppliers, supply chains or locations pose the greatest risk of forced labour, based on location, types of materials involved, volume, and whether or not material is being sourced from a conflict affected high risk area, and flagging them for additional due diligence. Crucially, companies are broadening the scope of risk assessments to include participation by a broader range of stakeholders, including rightsholders. These enhancements are coupled with training so that those conducting assessments may properly identify human rights risks and adjustments to enterprise risk management frameworks to call out risks for specific stakeholder groups and forced labour risks. Finding these efficiencies minimises disruption to the company’s operations and minimises the requirement for additional resources to conduct assessments.

Third party due diligence. Perhaps the cornerstone of an effective strategy to address forced labour in a company’s supply chain is conducting meaningful and effective risk-based due diligence, based on the company’s risk assessment, on upstream suppliers. Effective compliance programmes generally already call for risk-based due diligence on third parties in the context of corruption risks, and CBP’s expectations. Under the broader concept of due diligence, the UNGP framework, calls upon companies to carry out due diligence to identify, prevent and mitigate adverse human rights impacts. Companies that have a broader human rights due diligence framework or a responsible sourcing due diligence framework in place may supplement this framework to account for specific US anti-forced labour law risks to include specific document collection based on CBP guidance when shipments are detained, and thorough supply chain traceability. Companies are also including forced-labour focused questions in due diligence questionnaires, and where appropriate, requiring high-risk suppliers to provide assurances regarding traceability and availability of supply chain information. Integrating these due diligence questions into the company’s broader programme is a workable way to gather information, because it relies on the company’s already existing processes.

Beginning with these programme enhancements is a far less daunting task than building an entire human rights due diligence compliance programme from the ground up. By focusing on key hallmarks, companies add value to the pillars of their already existing compliance programme. Companies are then reinforcing these measures with additional human rights compliance initiatives, based on guidance from the UNGPs. Specifically, companies include social audits on key, high-risk suppliers and reinforcing controls by ensuring that the company has proper grievance mechanisms in place such that rightsholders and other stakeholders may report grievances related to forced labour concerns throughout the supply chain.

Mary Mikhaeel is a senior associate at Miller & Chevalier Chartered. She can be contacted on +1 (202) 626 5909 or by email: mmikhaeel@milchev.com.

Mary Mikhaeel

Miller & Chevalier Chartered