U.K. fashion retailer Boohoo last week saw several of its major clients sever ties with it after an undercover reporter for The Sunday Times in London found one of its suppliers was paying its employees less than half the minimum wage.

The reporter also found the factory—based in Leicester, the only U.K. city that has had its lockdown extended by two weeks because of a spike in coronavirus cases—had been operating continually since March without complying with recommended social-distancing measures. It is also accused the factory of pressuring workers—the majority of which were Asian and more susceptible to infection—to turn up for work even if they had tested positive for COVID-19.

The factory—signposted as Jaswal Fashions—had actually ceased trading in 2018 and was not a declared supplier. In a press statement, Boohoo—which owns fashion brands PrettyLittleThing, Karen Millen, and Coast—said it appeared a different firm was using Jaswal’s former premises and that it was trying to establish the identity of this company and why its garments were in its hands.

Sarah Riding, a partner at law firm Gowling WLG, says that “the fact that there are not proactive checks in place already at Boohoo is disappointing, given their prominent place in the market and claims of high ethical commercial standards.”

On July 8 the company stated it would launch an immediate independent review of its U.K. supply chain; commit £10 million (U.S. $12 million) to root out supply chain malpractice; and speed up its independent third-party supply chain review with ethical audit and compliance specialists. The first update on its review will take place in September.

Its attempt to regain its ethical credentials has, however, so far not paid off.

Major retailers including Next, Asos, and Zalando dropped Boohoo following the allegations, while one of its largest shareholders, Standard Life Aberdeen (SLA), also divested most of its stock in the company.

Lesley Duncan, SLA’s deputy head of UK equities, said that “having spoken to Boohoo’s management team a number of times this week in light of recent concerning allegations, we view their response as inadequate in scope, timeliness, and gravity.”

“If a supplier’s practices relating to human rights, labor standards, or environmental protection are found to be substandard, it is the customer company that will be held to account.”

John Perry, Managing Director, SCALA

The case has highlighted a number of ongoing concerns over workers’ health and safety that have become exacerbated during the pandemic, as well as inherent weaknesses in companies’ monitoring of their supply chains—often in industries reliant on high rotations of unskilled and (often undocumented) migrant labor.

Other U.K. companies have also fallen foul of abuses in their supply chains. On July 13 fast-fashion firm Quiz suspended one of the suppliers to its suppliers after claims another factory (also based in Leicester) offered a worker just £3 an hour to make its clothes. The national minimum wage for people over 25 years old is £8.72 an hour.

The National Crime Agency and the Gangmasters and Labour Abuse Authority (GLAA) have since visited a number of business premises in the Leicester area “to assess some of the concerns that have been raised in respect of modern slavery” and have said that further visits “are likely to continue.” So far, they have not identified any offenses under the Modern Slavery Act 2015.

Transparency in supply chains has been hampered by the pandemic in several ways. Business interruption has caused some trusted and approved suppliers to go bust while an inability to source goods and materials quickly has forced some companies to switch contractors without conducting the usual levels of due diligence or conduct site visits due to travel restrictions and health and safety concerns during the lockdown. Approved suppliers may have also subcontracted part of the work due to financial necessity, despite the terms of their contracts.

Chris Wrigley, co-head of law firm Osborne Clarke’s global compliance team, says that “COVID-19 has made scrutiny of supply chains harder because of the difficulties in conducting audits and, in some sectors, the need to change supply chains in response to the pandemic. However, supplier due diligence should be ongoing and, as restrictions ease, there will be opportunities to address gaps that have been created by the pandemic.”

One of the problems with monitoring supply chains is that companies tend to focus on getting more assurance on working practices in high-risk countries—in the case of garment manufacturing, this would include India, Bangladesh, Pakistan, Cambodia, and other developing countries: They take it “as read” that suppliers on their own doorsteps will act in accordance with their contractual obligations. The Boohoo and Quiz cases have shown how fanciful such expectations can be.

Experts say it has become increasingly obvious organizations need to talk to their suppliers about how they are monitoring their supply chains to ensure appropriate protections and standards are maintained. Companies also need to be prepared to enforce these expectations by contractual compliance obligations in their supplier contracts and codes of conduct, as well as carry out external audits and site visits. Further, if suppliers are going to subcontract part of the work, companies should insist on knowing what work will be contracted out, and to whom, so that they can be added to an approved list.

The U.K. Modern Slavery Act is meant to encourage businesses to understand where in their business and supply chains there are risks of employee exploitation or modern slavery and then identify effective steps and use their influence to improve conditions.

The legislation, however, only requires companies to make statements in their annual reports about what measures—if any—they are taking to uncover incidents of slavery in their supply chains. There are no criminal sanctions attached. Instead, the government hopes companies will do the right thing because failure to do so will hit their bottom lines more harshly than any fine could hope to achieve as customers and investors dump them.

Experts largely agree. “If a supplier’s practices relating to human rights, labor standards, or environmental protection are found to be substandard, it is the customer company that will be held to account,” says John Perry, managing director of SCALA, a provider of management services for the supply chain and logistics sector.