From both a human rights and global commerce perspective, forced labor is a serious and pervasive issue, impacting millions of people and compromising global supply chains. Defined by U.S. Customs and Border Protection (CBP) as “all work or service which is exacted from any person under the menace of any penalty for its non-performance and for which the worker does not offer himself voluntarily,” forced labor is insidious, impacting the manufacturing and production of a vast range of goods — spanning everything from electronics, apparel and industrial materials to pharmaceuticals, base metals and agricultural products.

As awareness of the issue grows, governments around the world are taking action to stop the flow of goods made with involuntary labor and, ultimately, eradicate forced labor practices from the supply chain. Germany’s Act on Corporate Due Diligence Obligations in Supply Chains (aka the Supply Chain Act) came into effect on January 1, 2023, obliging German companies and foreign companies with German operations to put systems and controls in place to identify whether their suppliers are involved in human rights abuses. 

Similarly, the recent EU Corporate Sustainability Reporting Directive (CSRD) shines a light on human rights violations, requiring businesses operating in the EU market to report and disclose information regarding their adverse human rights and environmental impact “with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with which the company has a business relationship.”

In the U.S., multiple government departments are working together to enact new forced labor regulations. In support of its commitment to “ending the abhorrent practice of forced labor around the globe,” the U.S. Department of Homeland Security (DHS) implemented the Uyghur Forced Labor Prevention Act (UFLPA) to prevent the oppression and exploitation of Uyghurs and other Muslim-majority communities in the Xinjiang Uyghur Autonomous Region of China. 

The UFLPA, signed by the Biden administration in December 2021 and brought into effect in June 2022, prohibits importation of goods into the U.S. manufactured wholly, or in part, with forced labor in the People’s Republic of China, with a targeted focus on goods from the Xinjiang region.

Heavy Burden of Proof

In its enforcement of UFLPA, CBP has adopted a “presumption of guilt” approach to detaining and seizing shipments that fall within the scope of the regulatory act. As a result, the burden of proof falls squarely on the shoulders of the importing company; importers must provide clear and convincing evidence that the goods were not produced using forced labor. 

With the increasing complexity of the global supply chain, many companies — especially small and medium-sized enterprises without the due diligence resources — are having difficulty proving they’re not in violation of UFLPA, resulting in millions of dollars’ worth of shipments seized last year. 

For example, during the period from June 2022 to June 2023, CBP denied 679 shipments worth $40.5 million over suspected ties to forced labor, while 1,985 detained shipments representing $711.5 million of goods are still being held, pending action — a huge financial blow to importers relying on these goods to drive their business operations.

CBP shipment data shows that electronics; apparel, footwear, and textiles; and industrial and manufacturing materials were the top three industries impacted by UFLPA enforcement actions last year, with Malaysia (60% of total shipments by value), Vietnam (28%), and China (12%) representing the top three impacted countries.

Human Rights Due Diligence

The new government regulatory acts, in the U.S. and abroad, require broad human rights due diligence throughout the supply chain back to the source, posing compliance challenges on an unprecedented scale, particularly for multinational companies with trade activities in high-risk countries such as China. Indeed, the growing tide of formal regulatory actions is accelerating the efforts that organizations need to make in this area, and businesses need a robust plan to manage their compliance risk. 

As a starting point, DHS recommends companies screen their overseas suppliers against its Uyghur Forced Labor Entity List, offering the following guidelines to help organizations comply with UFLPA requirements:

• Cross-reference suppliers against the UFLPA list of entities that are presumed to be using forced labor in their manufacturing process.
• Map out the supply chain, from raw materials to finished product, to mitigate the risk of unwittingly allowing forced labor to be part of the production flow.
• Publish a supplier code of conduct forbidding forced labor, and monitor supplier compliance.
• Address forced labor risk with suppliers and other stakeholders.
• Train staff and agents responsible for procuring suppliers and interacting with them to adhere to the code of conduct.
• Continually audit suppliers.
• Immediately terminate non-compliant suppliers.

While these recommendations are a useful framework, government regulatory lists are not exhaustive and are not updated with the requisite vigor and frequency to fully mitigate risk. Given that the DHS strategic guidelines are inextricably linked to the identification of high-risk entities, relying exclusively on the UFPLA list to support due diligence efforts exposes companies to the risk of dealing with suppliers and partners complicit in forced labor practices, whether knowingly or unwittingly. 

Filling in the Data Gaps

So how do companies combat the inadequacy of government regulatory lists and ensure their compliance programs provide the highest level of transparency and protection from forced labor risk? Importers can employ lessons learned from the enactment of the Treasury Department’s Office of Foreign Asset Control (OFAC)’s 50 Percent Rule, legislation created to prevent entities from obscuring their relationship with denied or restricted parties by shifting corporate ownership and control structure. 

When the OFAC 50% rule came into effect, OFAC did not publish an exhaustive list of individuals and entities implicated in violating the regulations. Consequently, companies had to conduct their own due diligence to vet third parties against the OFAC 50% criteria. 

Similarly, UFPLA forced labor due diligence demands the use of up-to-date custom lists, in addition to lists produced by government regulators. A third-party due diligence platform, augmented by granular data from analyst organizations specializing in identifying high-risk entities across the supply chain, automates and accelerates the compliance process while filling in the gaps presented by the lack of coverage from a regulatory perspective.

Programmatic Approach to Building a Transparent Supply Chain 

With increasing volatility and complexity of the global supply chain, the need for greater intimacy and transparency across the supply chain grows. A paradigm shift is underway, as the global trade ecosystem recognizes the imperative for trust-based supply chains that expose illicit labor practices. 

For importers, while the goal is to be able to maintain productive relationships with trading partners, companies need to start asking questions. Importers must ask their partners and suppliers for proof that forced labor issues are on their radar. Are their suppliers taking steps to mitigate risk in their business? What about their suppliers’ suppliers?  

Putting a framework around these questions helps companies develop due diligence practices to identify forced labor risks hidden in the supply chain. Companies should evaluate their compliance program to ensure they:

1. Map third-party relationships to build a full picture of their forced labor exposure. 
2. Understand international corporate networks and ownership structures.
3. Have access to the right content (e.g., building due diligence data sets that complement the UFPLA list and other government regulatory lists).
4. Have the tech capabilities to use the content and execute dynamic screening at scale.
5. Consider integrating screening into the business infrastructure systems (e.g., ERPs, CRMs).

Using a programmatic approach to prioritizing the supply chain for human rights due diligence is not only the smart legal, ethical, and financial choice but a competitive differentiator. Investment in and commitment to compliance is an enabler of growth, and accelerates brand equity. From a commercial perspective, if companies demonstrate strong compliance and risk mitigation, they will thrive in challenging markets in which other competitors might not be poised to handle the regulatory challenges presented by that jurisdiction.

With an estimated 17.3 million people in forced labor exploitation in the private economy — including four million in state-imposed forced labor, such as in China’s Xinjiang region — importers must start asking the hard questions and take action to mitigate the significant legal, financial, and reputational risks of trading with partners involved with forced labor. And as governments continue to pass due diligence responsibility onto the private sector, companies must take up the fight against illicit labor practices by building robust internal compliance programs and establishing best practices to expose complicit parties and eliminate forced labor from their supply chains.

Jackson Wood is director, industry solutions, trade compliance for Descartes.