Human Trafficking Compliance Arrives for Federal Contractors

Any company that does business with the federal government must now ensure that its supply chain is free of human-trafficking activities. Compliance officers, that is one more worry to add to your list.

A final rule added to the Federal Acquisition Regulations, which took effect March 2, follows a joint effort by the Department of Defense, General Services Administration, and National Aeronautics and Space Administration to end trafficking-related activities in government contracts. The rule is administered by the Federal Acquisition Regulation (FAR) Council, a cross-agency group that coordinates government procurement policy.

The new regulations expand upon the Trafficking Victims Protection Act (TVPA), and implement a 2012 Executive Order by President Barack Obama. Contractors and their employees already are prohibited from procuring commercial sex or using forced labor under the TVPA. The FAR regulations go even further by mandating anti-trafficking compliance programs that federal contractors and sub-contractors must follow.

The new regulations will affect more than 300,000 companies that do business with the federal government. “Companies and prime contractors are now on the hook to take responsibility for their sub-contractors and independent agents,” says Cynthia Cordes, a former U.S. assistant attorney and now a partner with law firm Husch Blackwell. “The era of getting by without knowledge of how, or by what means, sub-contractors obtain labor is over.”

Specifically, the FAR rule prohibits all contractors, sub-contractors, and their employees and agents from engaging in a broad range of activities that have been linked to human trafficking, including:

Destroying, concealing, confiscating, or otherwise denying access by an employee to the employee’s identity documents, such as passports or driver licenses;

Using misleading or fraudulent recruitment practices during the recruitment of employees, or using recruiters that do not comply with local labor laws;

Providing or arranging housing that fails to meet host country and safety standards;

Failing to provide a written employment contract, recruitment agreement, or similar work paper, if required by law or contract, in the employee’s native language at least five days before the employee parts from his or her country of origin; and

Failing to provide or reimburse return transportation costs upon the end of employment for employees who were brought into a country to work on a U.S. government contract or sub-contract.

Additionally, federal contractors and sub-contractors that provide supplies or services exceeding $500,000 outside the United States must implement a written tailored anti-trafficking compliance program. They must further certify to the federal government prior to an award (and annually thereafter) that neither they nor any of their sub-contractors have engaged in trafficking-related activities. (The rule provides an exemption for contracts and sub-contracts for commercially available off-the-shelf items.)

“Companies and prime contractors are now on the hook to take responsibility for their sub-contractors and independent agents.”
Cynthia Cordes, Partner, Husch Blackwell

“They’re not saying you need to think about this issue,” Cordes says. “They’re saying, ‘If you’re going to do business with us, we want a certification that these things are done. Period.”

Companies should not simply assume that their supply chain is not involved in human trafficking activities. “Certification statements have to be accurate and truthful,” says William Shepherd, a partner with law firm Holland & Knight.

That effectively means companies will need to do proper due diligence. “The immediate challenge for any company is to be sure they understand where their labor force comes from,” says Samuel Witten, a lawyer with law firm Arnold & Porter who previously spent many years at the State Department as a lawyer and later managing its refugee assistance programs. Understanding where your labor force comes from, he says, will be a tall order for a multinational company that has thousands of overseas employees, many of whom may have been hired by sub-contractors.

“In the past, companies that entered into contracts with the government really have not been aware—and some have been willfully blind—about how a lot of the labor is being obtained in their supply chain,” Cordes says. “Sometimes it’s because of how the company is structured. Sometimes it’s because they don’t want to know what’s going on.”

An anti-trafficking risk assessment should include the following questions: Who is recruiting employees on the company’s behalf? How do they find these workers? What do employees’ work and employment conditions look like? What are employees being paid compared to local market wages? What do employees’ housing arrangements look like?

HUMAN TRAFFICKING VIOLATIONS

Below is an expert from the Federal Acquisition Regulations, Subpart 22.17—“Combating Trafficking in Persons.”
With regard to certification and a compliance plan, [government solicitations and contracts shall]—
(1)(i) Require the apparent successful offeror to provide, before contract award, a certification that the offeror has a compliance plan if any portion of the contract or subcontract—
(A) Is for supplies, other than COTS items to be acquired outside the United States, or services to be performed outside the United States; and
(B) The estimated value exceeds $500,000.
(ii) The certification must state that—
(A) The offeror has implemented the plan and has implemented procedures to prevent any prohibited activities and to monitor, detect, and terminate the contract with a sub-contractor or agent engaging in prohibited activities; and
(B) After having conducted due diligence, either—
(1) To the best of the offeror’s knowledge and belief, neither it nor any of its agents, proposed subcontractors, or their agents, has engaged in any such activities; or
(2) If abuses relating to any of the prohibited activities identified in 52.222-50(b) have been found, the offeror or proposed subcontractor has taken the appropriate remedial and referral actions;
(2) Require annual certifications during performance of the contract, when a compliance plan was required at award;
(3)(i) Require the contractor to obtain a certification from each subcontractor, prior to award of a subcontract, if any portion of the subcontract—
(A) Is for supplies, other than COTS items to be acquired outside the United States, or services to be performed outside the United States; and
(B) The estimated value exceeds $500,000.
(ii) The certification must state that
(A) The subcontractor has implemented a compliance plan; and
(B) After having conducted due diligence, either—
(1) To the best of the subcontractor’s knowledge and belief, neither it nor any of its agents, subcontractors, or their agents, has engaged in any such activities; or
(2) If abuses relating to any of the prohibited activities identified in 52.222-50(b) have been found, the subcontractor has taken the appropriate remedial and referral actions;
(4) Require the contractor to obtain annual certifications from subcontractors during performance of the contract, when a compliance plan was required at the time of subcontract award; and
(5) Require that any compliance plan or procedures shall be appropriate to the size and complexity of the contract and the nature and scope of its activities, including the number of non-U.S. citizens expected to be employed and the risk that the contract or subcontract will involve services or supplies susceptible to trafficking in persons.
Source: FAR Regulations.

If the contractor or sub-contractor discovers potential violations, it should be prepared to show that it has taken appropriate remedial and referral actions. Likewise, when companies make good decisions related to anti-trafficking practices—such as dismissing a supplier, or refusing to hire a supplier in the first place, because of questionable employment practices—they should document that as well, Shepherd says.

Penalties for non-compliance are potentially severe, including termination of government contracts, debarment, False Claims Act liability, whistleblower claims, and more. “It really changes the dynamic of what they’re exposure is because of the regulations that are in place,” Cordes says.

Compliance Program Details

Federal contractors and sub-contractors subject to the written compliance mandate must include in their plan at a minimum:

An employee awareness program about the government’s zero-tolerance policy with regard to human trafficking, the trafficking-related activities in which the contractor is prohibited from engaging, and the actions that will be taken against employees for violations;

A process for employees to report trafficking violations without fear of retaliation, including through a hotline number and e-mail address;

Recruitment and wage plan that only permits the use of recruitment companies with trained employees, prohibits charging “recruitment fees” to the employee, and ensures that wages meet applicable host country legal requirements;

A housing plan (if the contractor provides or arranges housing) that ensures compliance with applicable host country legal requirements; and

Procedures to prevent agents and sub-contractors from engaging in human trafficking in persons, and to monitor, detect, and terminate any agents, sub-contractors or sub-contractor employees that have engaged in such activities.

The FAR regulations also mandate that federal contractors and sub-contractors publish such plans at their workplaces and on their websites. Beyond having a written policy in place, federal contractors and sub-contractors need to provide interactive training on the anti-trafficking requirements, Witten says. This includes training employees so that they know where to report human trafficking violations.

State of Compliance

The good news is that many companies already try to address human trafficking somehow, and many of the new compliance practices are quite similar to what companies already do for anti-corruption, conflict- minerals, and the like. Exactly how to reform company policies, however, is where struggles arise.

According to a recent study conducted by The Economist Intelligence Unit of 853 corporate executives, 83 percent acknowledge that business is an important player in respecting human rights, and what their companies do—or fail to do—affects those rights. But 32 percent cited a lack of understanding of their company’s responsibilities in this area, and a lack of training and education for employees (26 percent), were common barriers. “That’s where companies have to make the investment,” says Howard Dorman, a partner with accounting and advisory services firm WeiserMazars, a sponsor of the study.

The sheer complexity of the task at hand may explain why companies have been slow to reform their policies, the report stated. Ed Potter, director of global workplace rights at Coca Cola, said that to identify potential human rights issues in procurement, for example, Coca Cola needs a detailed assessment of the various tiers of its supply chain for roughly 30 agricultural commodities in 207 countries.

To accomplish this, the company must focus first on higher-risk goods in countries with a greater likelihood of human rights issues. Potter quipped that the task is so large, “my great-great-grandchildren will be alive when we eventually complete this journey.”

Although more companies are starting to integrate human rights considerations into their policies, only 22 percent of respondents said they make those polices publically available. That’s likely to change as more regulations come into play, mandating that companies be more transparent about human rights issues.  

“This is not going to go away. There will be more reporting requirements,” Dorman says. “So why not get in front of it? Why be reactive when we can be proactive?”