Human Trafficking Prevention Disclosures May Be in the Offing

Companies may soon have to say more about what they are doing to prevent suppliers and other third parties from engaging in any type of human trafficking.

Fresh off efforts to comply with the first round of disclosures about the existence of “conflict minerals” in the supply chain, companies are bracing for the next social activism issue to creep into security laws and other regulations, and it looks to be anti-human trafficking requirements.

 The federal government is considering laws that would require federal contractors to do more to prevent human trafficking by suppliers, and legislators are considering requiring new disclosures on what companies are doing to prevent it. Already some states have passed laws requiring companies to ensure that suppliers aren’t engaging in practices that would run afoul of laws against slavery and human trafficking.

Earlier this month, U.S. Rep. Caroline Maloney (D-N.Y.) filed legislation that requires public companies “to disclose information describing any measures the company has taken to identify and address conditions of forced labor, slavery, human trafficking, and the worst forms of child labor within the company’s supply chains.”

Seeing the writing on the wall, the nation’s largest companies are already trying to get ahead of the issue.  The American Bar Association and Arizona State University’s McCain Institute and School of Politics and Global Studies released a study this month that looks at how Fortune 100 companies are addressing human trafficking concerns. It found that more than half have publicly available policies addressing human trafficking and nearly two-thirds provide them on forced labor.

Because some of the 100 companies have little engagement with international production and global supply chains—including those in insurance, banking, and financial services—the researchers also separated them from the pool, leaving 79 companies as a “target group.” Within that grouping, nearly two-thirds had publicly available policies related to human trafficking and over three-quarters addressed forced labor.

Virtually all Fortune 100 companies (95 percent) have policies expressing a commitment to ongoing supply chain monitoring, with 21 percent using internal monitoring, 5 percent using external monitoring, and 68 percent using a combination of both.  

 “The fact that many, although not all, of the companies researched have publicly available policies on these issues is a positive sign,” the study says. “This is a clear indication of a growing understanding that corporate social responsibility includes reviewing potential human rights and labor abuses within global supply chains.”

Around half of the target group referenced some element of international law or guidelines. The most commonly referenced documents and laws are the Universal Declaration of Human Rights, the ILO Declaration on the Fundamental Principals of Rights at Work, and the United Nations’ Global Compact. The most commonly cited laws are the state of California’s Transparency in Supply Chain Act (56 percent) and the Dodd-Frank Act (34 percent), the latter usually in conjunction with its conflict minerals statute.

“We were surprised by the data, which revealed that major companies are moving more quickly than we expected to develop policies that address potential human rights and labor abuses within their global supply chains,” says ASU Professor Daniel Rothenberg, who oversaw the research. “While there remains significant variation in the corporations’ methods to address these issues, it suggests that Fortune 100 companies—as well as the larger business community—may increasingly develop partnerships with civil society groups, government agencies, and others.  Some of these changes are driven by legislation, but there also appears to be an emerging norm among businesses that these issues are a key element of corporate social responsibility.”

For many, demands that they address the risk of human trafficking hardly come as a surprise. The government has been slowly refining its demands on vendors and contractors for nearly 15 years. “Trafficking has been prohibited under various laws for a long time, and a lot of the legal structure came from a single, very strong law called the Trafficking Victims Protection Act in 2000,” says Samuel Witten, a lawyer with the law firm Arnold Porter who, as a 22-year veteran of the State Department, managed its refugee assistance programs.

Demands on Federal Contractors

In 2013, the Federal Acquisition Regulatory Council published a proposed rule setting new responsibilities for federal contractors and sub-contractors and their efforts to prevent human trafficking and forced labor. That proposal emerged a year after President Barack Obama issued an executive order, “Strengthening Protections Against Trafficking in Persons in Federal Contracts.” It also came on the heels of similar requirements added to the 2013 Defense Reauthorization Act and the Department of Defense’s anti-trafficking policy.

The proposed rules, yet to be finalized, will have far-reaching consequences for federal contractors and sub-contractors both in the United States and abroad, Whiten says. They must ensure that they do not engage in a variety of trafficking-related activities, a list that includes: providing misleading information about work conditions; misleading or fraudulent recruitment practices; requiring employees to pay recruitment fees; misrepresentations regarding terms and conditions of employment, including wages and fringe benefits; failing to provide a written employment contract, recruitment agreement, or similar work paper in employees’ native language before they depart  from their own country; and failing to pay return transportation costs for workers brought to a location to work on a government contract. Contractors and sub-contractors with large, overseas contracts must also develop and maintain detailed anti-trafficking compliance programs and provide annual certifications of their anti-trafficking efforts.

Federal contractors and sub-contractors with contracts providing services or supplies abroad that exceed $500,000 would be required to maintain appropriate compliance plans targeting trafficking activities. The plans must include an employee awareness program; a process for employees to report trafficking violations without fear of retaliation; and procedures to detect and terminate anyone engaged in these activities.

“The focus has shifted based on lessons learned by the government through its Foreign Corrupt Practices Act and anti-trust efforts,” says William Shepherd, a trial lawyer with the law firm Holland & Knight and a former statewide prosecutor in Florida. “Based on the resources they have, the government has made a decision that this is an issue that needs to be addressed on a global scale and they will create that change by forcing businesses around the world to somehow police this themselves. Otherwise, it is an impossible challenge. They are not going to hire a million new FBI agents to travel the globe and see if U.S. businesses have what the statutes would define as human trafficking in their supply chain. They are just going to make the businesses do it themselves and, if they don’t do it, they do so at their own peril.”

New Disclosures?

That push, he suspects, could eventually lead to Congress pushing a corporate disclosure demand upon the SEC, similar to what was done with conflict minerals. The federal procurement rules also dovetail with the growing number of states, led by California, that are enacting their own anti-human trafficking laws.

“There is always going to be political will to ratchet up enforcement on modern day slavery,” Shepherd says, although he frets companies may not like how broadly the government appears to be defining human trafficking. In fact, he wonders if many domestic companies could meet the workforce requirements. “You have to pay the standard market wages for the country, and the job has to be the same as the one advertised,” he says. “Well, many companies add additional tasks as a job morphs over time.”

Fortune 100 Companies Address Human Trafficking

The American Bar Association and Arizona State University’s McCain Institute and School of Politics and Global Studies conducted a study on how Fortune 100 companies are publicly addressing the issues of human trafficking and forced labor.

Sources: American Bar Association; McCain Institute.

Shepherd is also concerned that forthcoming rules could be overly subjective. “If you tell us what a bright-line standard is, we will follow it,” he says. “If it is going to be beauty in the eye of a government lawyer, we will run into problems.”

Earlier this year, seeking to provide a blueprint for human trafficking prevention programs, the American Bar Association released its “Model Business and Supplier Policies on Labor Trafficking and Child Labor.” It is widely viewed as a blueprint for what will become regulatory requirements. It urges companies to adopt a risk-based approach that devotes greater attention and resources to detected hotpots of illegal activity. That risk assessment, the ABA suggests, should include the use of specially trained employees or third-party monitors on-the-ground. Risk factors include where the business will be conducted, the history of human trafficking in a given sector or industry, and the particular products or services involved. Employee training and outreach, monitoring, ongoing risk assessments, supply chain due diligence and safeguards, and a remediation program are other necessary ingredients for a program.

“You have to institutionalize your program,” Michael Navarre, special counsel for the law firm Septoe & Johnson, says. “You have to have someone who is in charge of it, and you have to have some policies and procedures that govern how you do it. You also want to incorporate it into your overall compliance and ethics program alongside the due diligence and risk assessment you do for FCPA issues.”