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The reputation-shredding scourge of human trafficking

Robert Kraft

Joe Mont | February 27, 2019

Media sources have feasted on the scandal sparked by New England Patriots Owner Robert Kraft’s trips to a “massage parlor” in Jupiter, Fla., that allegedly served as a front for illegal prostitution and human trafficking.

What is overlooked, amid the bad Deflategate jokes and scandal-driven schadenfreude, is a very real problem that shouldn’t be so cavalierly considered. Human trafficking must be the focus, not the alleged sexual proclivities of a 77-year-old widower. It is a battle that public companies, legislators, and regulators have been fighting for years with varying degrees of success.

For weeks—even with knowledge that women were allegedly held captive, forced to perform sex acts, and barred from leaving the small premises—the Jupiter cops seem to have been more focused on amassing the list of “customers” and installing hidden cameras to produce gotcha recordings than liberating the women allegedly held captive.

Fortunately, more focused and right-minded approaches to these human rights abuses are at work elsewhere, especially in the corporate world.

All 50 states and the District of Columbia have enacted some form of anti-trafficking legislation, most notably the California Transparency in Supply Chains Act. Passed in 2012, it requires that retailers and manufacturers doing business in California (with annual worldwide gross receipts that exceed $100 million) publicly disclose details on how they conduct due diligence to purge their supply chains of slavery, forced labor, and human trafficking risks.

Another longstanding effort, the United Kingdom’s Modern Slavery Act, also mandates transparency in supply chains and requires companies to develop annual statements describing efforts to ensure that slavery and human trafficking are not found in their supply chains.

“Although no publicly traded companies intentionally support human trafficking, they can become complicit by inadequately overseeing their supply chains.”

Business for Social Responsibility

In March 2015, new requirements related to human trafficking went into effect for government contractors. Those performing work for over $500,000 outside the United States must develop and maintain a trafficking compliance plan and certify that, to the best of their knowledge, neither they nor any of their sub-contractors has engaged in trafficking-related activities.

On an annual basis, these companies that are required to prepare a compliance plan must detail efforts to prevent, detect, and respond to potential and existing human trafficking and forced labor violations. The plans must cover both the company itself and its network of suppliers and sub-suppliers.

Efforts are also afoot, both through regulatory efforts and consumer/investor pressures, to force public companies to disclose measures to prevent human trafficking, slavery, and child labor in their supply chains in disclosures to the Securities and Exchange Commission.

Legal questions linger

Many companies are taking on initiatives of their own to combat slave labor and human trafficking.

Despite these efforts, however, they can still—unwittingly or otherwise—be enablers. A common cause is a lack of thorough due diligence of their third parties, vendors, and supply chain partners.

“Although no publicly traded companies intentionally support human trafficking, they can become complicit by inadequately overseeing their supply chains,” says a statement from Business for Social Responsibility, a global non-profit organization that works with more than 250 member companies. “To combat this, companies must remain vigilant regarding their suppliers’ hiring policies and practices to avoid and discourage these conditions in the workplace. However, continually assessing supply chains for thousands of global companies is no small task.”

The legal landscape remains unsettled. Since 2015, class-action lawsuits, many drawing upon California Transparency in Supply Chains Act disclosures, have targeted companies for, among other things, using shrimp produced with slave labor in Thailand (a common ingredient in cat food brands) and importing cocoa supplies tainted with child labor.

Some of those lawsuits have prevailed, others were dismissed, and still others were refiled or are lingering in legal limbo. There are indeed tricky and sticky legal conundrums.

Should a company be held liable for engaging in services provided by people forced into labor even though the client was not aware of the slave labor? Proponents would say yes, citing inadequate—possibly reckless—due diligence, especially if public disclosures claim these efforts are indeed sufficient. Other legal arguments, however, posit that these lawsuits overreach.

In a June 2018 opinion by the U.S. Court of Appeals for the Ninth Circuit, in Robert Hodson v. Mars, Inc. the court’s judicial panel affirmed a district court’s dismissal of the plaintiff’s consumer protection claims in a putative class action alleging that Mars, a chocolate manufacturer, had a duty to disclose on its labels the labor practices that may have tainted its supply chain.

“Concerning plaintiff’s duty to disclose claims, the panel held that California consumer protection laws did not obligate Mars to label its goods as possibly being produced by child or slave labor,” Judge A. Wallace Tashima wrote. “The panel further held that in the absence of any affirmative misrepresentations by the manufacturer, the manufacturer did not have a duty to disclose the labor practices in question, even though they were reprehensible, because they were not physical defects that affected the central function of the chocolate products.”

Only time will tell whether this opinion established a pervasive legal standard.

As ongoing legal challenges come, go, and evolve, the U.S. Chamber of Commerce is among those stressing how “companies with global operations and business partners have developed detailed and effective programs to address human trafficking.”

Its list of what companies have done, or should do, serves as a great blueprint for how companies can shore up their efforts:

  • Involve company leadership and directors to identify and eradicate human trafficking;
  • Establish board committees dedicated to social responsibility efforts and addressing human trafficking in their supply chains;
  • Report anti-trafficking initiatives to shareholders;
  • Use in-house or third-party analysts to identify areas where their business partners and operations may pose a risk of susceptibility to human trafficking;
  • Use a risk analysis to guide more intensive and targeted due diligence and mitigation;
  • Create long-term incentives for suppliers to comply with company policies to refrain from human trafficking and other forced labor practices;
  • Implement training and awareness programs;
  • Use in-house and third-party consultants to develop goals and key performance indicators to effectively monitor adherence by business partners;
  • Deploy monitoring methods that range from self-reports from business partners to unannounced site visits by third-party or company auditors;
  • Have auditors provide country-level reports on political and socioeconomic situations and how those situations affect workers in those countries;
  • Integrate certification requirements into company contracts;
  • Provide a confidential helpline for suppliers’ employees; and
  • Implement policies prohibiting workers from paying recruitment fees.

The Chamber also shrewdly suggests examining production planning and order placement practices. “Companies that rely on business partners to manufacture and fulfill orders have recognized that certain business conditions may create additional risks of involving entities that are susceptible to forced labor,” it says. “Short deadlines for large amounts of product, for example, may exceed the capacity of a known and trusted business supplier. This may force the supplier to look outside its own operations for additional capacity, possibly to unknown tertiary suppliers that may be more susceptible to the risks of using trafficked labor.”

As for why all these efforts are necessary ... Setting aside monetary penalties, reputational risk, and brand damage can harm a company and its bottom line for years to come. As bad as the PR nightmare is for Kraft, the repercussions could be a thousand-fold for your company.