USA: Recent developments in US legislation on modern slavery

The recent introduction of the Federal Business Supply Chain Transparency on Trafficking and Slavery Bill (H.R. 4842) on 11 June 2014 (the “Bill”) is the U.S. government’s latest initiative in developing its approach towards human rights protections in business. The Bill builds on the California Business Supply Chain Transparency on Trafficking and Slavery Act, which came into force in January 2012 and only applies to retailers and manufacturers doing business in California.

Under the Bill, all companies with worldwide annual gross receipts exceeding $100 million, and which are currently required to file annual reports with the Securities and Exchange Commission, are to disclose what measures, if any, they have taken to identify and address conditions of forced labour, slavery, human trafficking and the worst forms of child labour[1] within their supply chains,[2] whether within the US or abroad. These reporting obligations are designed to encourage the adoption of internal policies and processes by exposing businesses to scrutiny. They also incentivise businesses by empowering consumer groups with greater information on companies’ human rights behaviour. In addition to complementing existing US legislation prohibiting human trafficking and forced labour in relation to federal procurement contracts, the Bill is consistent with other initiatives around the world to curb forced labour.

California Transparency in Supply Chains Act

The California Transparency in Supply Chains Act was enacted on September 30, 2010 and came into force on January 1, 2012. It builds on existing state law criminalising human trafficking and allowing human trafficking victims to bring civil actions for damages and injunctive relief, and applies to retailers and manufacturers doing business in California and having annual worldwide gross receipts in excess of $100 million. The Act requires businesses to disclose on their websites what, if anything, they are doing to:

1. engage in verification of product supply chains to evaluate and address risks of human trafficking and slavery, specifying if the verification was not conducted by a third party;
2. audit suppliers to evaluate their compliance with company standards for trafficking and slavery in supply chains, specifying if the audit was not independent and unannounced;
3. require direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the countries in which they are doing business;
4. maintain internal accountability standards and procedures for employees and contractors failing to meet company standards regarding slavery and trafficking; and
5. provide training to employees and management with direct responsibility for supply chain management, particularly with respect to mitigating risks within the supply chain.

The Bill (H.R. 4842)

Introducing the Bill, Representative Carolyn Maloney (D-NY) explained that the legislation seeks to create a “market-based solution rather than relying on prescriptive action by the federal government.” The Bill “doesn’t tell businesses what to do, but rather tell consumers what they are doing to end human slavery.” Rep. Maloney noted that over 20 million people in the world are estimated to be working in some form of forced labour, with the US Department of Labour listing 134 goods from 74 countries on its 2012 List of Goods Produced by Child Labour or Forced Labour.

The Bill echoes the U.N. Guiding Principles on Business and Human Rights, which “affirm that business enterprises have a responsibility to respect human rights, and that States have a duty to ensure these rights are protected. Such Guiding Principles also clarify that the duty to protect against business-related human rights abuses requires States to take the necessary steps to prevent and address human rights abuses to workers through effective policies and regulation.”

The Business Supply Chain Transparency on Trafficking and Slavery Bill (H.R. 4842), which is co-sponsored by Representative Christopher Smith (R-NJ), has been referred to the Committee on Financial Services and the Committee on Education and the Workforce for consideration.

Disclosure obligations

Specifically, H.R. 4842 would require companies (i) with annual worldwide gross receipts in excess of $100 million and (ii) currently required to file annual reports with the Securities and Exchange Commission, to disclose to the SEC whether they have taken any measures to identify and address conditions of forced labour, slavery, human trafficking and the worst forms of child labour within their supply chains, and to describe the measures taken. The information shall then be made available to the public, NGOs, and consumer groups on the websites of the companies, the SEC, and the Department of Labour. It is thus the intent of the Bill’s sponsors to ultimately allow consumers to make informed purchasing decisions. Specifically, companies should disclose their efforts to:

1. maintain a policy to identify and eliminate the risks of forced labour, slavery, human trafficking and the worst forms of child labour within their supply chains;
2. maintain a policy prohibiting their employees and associated entities’ employees from engaging in commercial sex with a minor;
3. evaluate and address the risks of forced labour, slavery, human trafficking and the worst forms of child labour within their supply chains, including measures taken toward eliminating those risks, whether the evaluation was conducted by a third party, whether independent labour organisations have been consulted, and the extent to which other entities in the supply chain are covered;
4. ensure that audits of suppliers within the supply chain are conducted to investigate working conditions, verify whether such suppliers have in place appropriate systems to identify risks of forced labour, slavery, human trafficking and the worst forms of child labour, and evaluate whether these systems comply with the company’s policies or efforts;
5. require suppliers to attest that they comply with relevant domestic laws on forced labour, slavery, human trafficking and the worst forms of child labour in manufacturing and recruitment; maintain internal accountability standards, supply chain management and procurement systems; train employees and management; audit labour recruiters and disclose the results of such audits; and
6. ensure that remedial action is provided to victims of forced labour, slavery, human trafficking and the worst forms of child labour, where identified within the supply chain.

Business Incentives

To incentivise businesses, the Bill also provides for the Department of Labour to publish on its website a list of the top 100 companies adhering to federal and international supply chain labour standards.

Both the California Act and the federal Bill impose disclosure obligations on businesses, without imposing substantive requirements regarding human rights safeguards. In the words of Rep. Maloney, the legislation simply “creates competition to improve practices to end slavery by providing the public with information about what companies are doing to address slavery.”

The Federal Bill is a further step towards answering demands for corporate transparency and accountability – not by direct governmental regulation, but by consumer choice. Thus businesses are motivated by the incentive of distinguishing themselves to consumers as responsible corporate actors by implementing voluntary safeguards. The disclosure obligation itself is de minimis, although businesses will recognise that a conspicuous dearth of safeguard measures will probably not be in their commercial interest.

Possible Penalties

Because the focus of the Bill is to incentivise business rather than to create a sanction-based implementation of the principles it advances, the Bill does not provide for direct sanctions for non-compliance. Nonetheless, the Bill builds upon related federal legislation which does punish modern slavery and trafficking.

As highlighted in the U.S. Government Approach on Business and Human Rights, published by the U.S. Department of State Bureau of Democracy, Human Rights and Labour in 2013, the Trafficking Victims Protection Act was amended in 2008 to punish anyone who knowingly benefits from “participation in a venture which has engaged in any act of peonage, slavery, or trafficking in persons, knowing or in reckless disregard of the fact that the venture has engaged in such violation….” The U.S. Government reaffirms the U.N. Guiding Principles and encourages stakeholders to treat them as a floor rather than a ceiling, emphasising the reputational and legal benefits of good human rights behaviour for businesses, and providing a list of best practices.

Moreover, the Securities and Exchange Act punishes any failure to file the reports required with a $100 daily fine. The Bill would add a new Section 13(s) to the Security and Exchange Act requiring the Securities and Exchange Commission and the Secretary of State to promulgate regulations within one year after the enactment of the Bill that would require that any covered issuer to take measures during the reporting year to identify and address conditions of forced labour, slavery, human trafficking, and the worst forms of child labour within the covered issuer’s supply chain. It remains to be seen how the penalty under Section 32 (b) of the Securities and Exchange Act (punishing) will apply to Section 13(s) if and when the Bill is enacted.

Consequences for Federal Contractors

Title XVII, “Ending Trafficking in Government Contracting” of the National Defence Authorisation Bill (2013) prohibits acts that directly support human trafficking by requiring compliance and certification measures in all federal contracts, and expands existing criminal law penalties for fraud in foreign labour contracting to reach work performed outside the U.S. If enacted, the Bill would reinforce existing federal procurement legislation in this regard: the Trafficking Victims Protection Reauthorization Act of 2003 and the Trafficking Victims Protection Act of 2005[3] provide for the termination of Federal contracts where a Federal contractor engages in trafficking, commercial sex or forced labour, while Executive Orders 13126 (Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labour) and 13627 (Strengthening Protections Against Trafficking In Persons In Federal Contracts) and title XVII of the National Defence Authorisation Act for Fiscal Year 2013 (Public Law 112-239) prohibit federal contractors from engaging in trafficking-related activities including confiscating workers’ identity documents and fraudulent recruitment practices.

Final Comment

The Bill was introduced on the day the International Labour Organisation (“ILO”) adopted a Protocol to the 1930 Forced Labour Convention No. 29 (see our previous blog), and a day after a Modern Day Slavery Bill was submitted to the British Parliament’s consideration. Unlike the UK Modern Day Slavery Bill, the US federal Bill does not aim at putting in place a harmonized punishment and sanctions platform for slavery and trafficking offenses. The Bill is, however, consistent with an international framework of rules, guidelines, and initiatives tackling the reality of an estimated 20.9 million victims of forced labour globally.

For further information, please contact Larry Shore, Partner, Amal Bouchenaki, Counsel, Liang-Ying Tan, Associate, or your usual Herbert Smith Freehills contact.

[1]    The International Labour Organisation defines the “worst forms of child labour” as:

(a) all forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage and serfdom and forced or compulsory labour, including forced or compulsory recruitment of children for use in armed conflict;

(b) the use, procuring or offering of a child for prostitution, for the production of pornography or for pornographic performances;

(c) the use, procuring or offering of a child for illicit activities, in particular for the production and trafficking of drugs as defined in the relevant international treaties;

(d) work which, by its nature or the circumstances in which it is carried out, is likely to harm the health, safety or morals of children.

See Article 3 of ILO Convention No. 182,http://www.ilo.org/ipec/facts/WorstFormsofChildLabour/lang–en/index.htm. See further US Department of Labour Bureau of International Labour Affairs, 2012 Findings on the Worst Forms of Child Labour, which adopts this definition, http://www.dol.gov/ilab/reports/pdf/2012TDA.pdf

[2]    H.R. 4842 (long title).

[3]    The Trafficking Victims Protection Act of 2005 also provides United States courts with criminal jurisdiction abroad over Federal employees, contractors, or subcontractors who participate in severe forms of trafficking in persons or forced labour.