Policy changes underscore need for enhanced child labor due diligence

The process can also help your firm comply with pending child labor laws in other jurisdictions.

While the U.S. Department of Labor (DOL) is seeking tougher enforcement powers from Congress, other nations are moving ahead against child labor and forced labor.

The European Union has agreed to enact a ban on products made with forced labor.

Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act, which took effect in January, will require businesses to begin reporting the steps they took during the previous financial year to “prevent and reduce the risk that forced labor or child labor is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada.”

The law raised the profile of the child labor issue to companies doing business in North America, said Brad Gates, regional head of the Americas at Ethixbase360, a risk management software vendor.

The law “has the potential to go much further,” he said, and could be extended to more industries and gain greater influence over U.S. regulation. This is a positive development, as more regulation is needed to push bad actors to stop relying on child labor and forced labor, Gates said.

Companies that want to ensure they aren’t using child labor in their supply chains need to know who their suppliers are and take additional steps if in an industry at higher risk for child labor exploitation.

Gwen Hassan, deputy chief compliance officer at Unisys, suggested finding child labor violations in a supply chain should begin by narrowing the search. Many companies have thousands of vendors, even tens of thousands, and it would be an impossible task to evaluate child labor abuse risks posed by each one, she said.

Use variables to narrow the funnel. This includes asking, “Is there a high level of hourly workforce in this particular area of the supply chain?” Another question to consider is, “Is this vendor located in a region known to have a high level of child trafficking?”

“If you use some of the variables to narrow down that funnel, you can get to a place where you’re targeting a handful of suppliers and come up with a transition plan,” Hassan said.

Companies at higher risk might need to comb through their supply chains and their suppliers’ supply chains more carefully and not rely on what they are told, Gates said.

Child labor tends to go hand in hand with other risks, like bribery and corruption, Gates said. Companies already using a third-party management platform to search for bribery and corruption risks can add new risks, including child and forced labor, to those platforms. Risks might increase or decrease depending on the country, the type of supplier, and their connections to government entities, he said.

For companies operating within the United States that want to reduce their risk of involvement with child labor exploitation, the DOL has created employer self-assessment tools, which are online questionnaires for businesses to check if they are in violation of child labor laws or at risk of violation.

Opportunities for AI

Only 1 percent of cargo is properly vetted by government agencies globally, which allows many products made with child and slave labor to enter legitimate markets, said Ram Ben Tzion, co-founder and chief executive officer of Publican, a digital platform used by customs and tax authorities to vet shipments for fraud.

The rise in artificial intelligence (AI) systems and digital tools in the supply chain risk mitigation space is an opportunity to make a significant dent in child and forced labor.

As it stands, “Large brands … are working hard to prevent sourcing goods made with forced labor ties, but it can be a difficult task,” especially when only manual tools are used, Ben Tzion said.

By using AI, every transaction can be automatically analyzed, rather than relying on the limited, manual inspection of shipments, Ben Tzion said.

This automation makes it harder for companies to conceal noncompliance with sanctions, for example, and moves inspections closer to 100 percent accuracy.

At the business level, Ben Tzion recommended companies turn to AI and digital tools to gain transparency and visibility into their supply chains to identify unethical suppliers that can possibly put them in danger of being noncompliant.

Hassan said vendors have developed sophisticated supply chain mapping models using AI tools that incorporate information from public information sources like government registries and media reports, to create a visual map that shows potential links to companies at higher risk for using child labor. Some of these companies include employment and recruiting agencies that have been previously identified as having connections to human trafficking and child labor.

Other resources

Hassan also suggested that businesses refer to a U.S. Customs and Border Protection (CBP) program called the “Customs Trade Partnership Against Terrorism” (CTPAT) for guidance about what the CBP and DOL recommend in terms of mitigating the risk of child and forced labor in supply chains.

The CTPAT program is a voluntary program open to businesses that agree to meet CBP security requirements in exchange for certain benefits, like being able to move to the front of an inspection line and be subject to a reduced number of inspections.

Since Jan. 1, 2023, one of the CTPAT requirements is for companies to have documented criteria in place to show how they prevent goods with forced or child labor from being imported into the United States, something the DOL calls “the comply chain.”

The threat of forced labor must be addressed in the company’s risk management program. At a minimum, this includes assessing your risks and impacts, training your employees, stakeholders, and partners about the risks and how your company will communicate about them, mitigate them, and report.

Suppliers must be required to have in place a code of conduct to prevent forced labor. It must include monitoring compliance with policies and procedures and an independent review.

Companies must be able to show the steps they take to mitigate the risk of forced labor in their supply chains. The CBP attributes a global increase in child and forced labor to outsourcing: a common practice when manual labor is sought to perform jobs like cleaning, mining, fishing, and harvesting fruit. The agency’s guidance urges companies to apply due diligence to contractors.

When assessing risks, CTPAT companies must use certain reliable and credible tools, including the International Labor Organization’s indicators of forced labor; the DOL’s list of goods produced by child labor or forced labor, the DOL’s better trade tool, and others.

“Companies with responsible supply chain practices not only attempt to protect vulnerable workers, but they also guard against legal, reputational, and financial risks,” the CBP said. “The more companies proactively engage in responsible supply chain management, the better equipped they will be to respond when a disruption occurs. Those that do not could face financial and legal risks, in addition to the tarnished perception of their brand and image.”