The recent migrant crisis over the last few years coupled with the shocking exposure of labor issues in global supply chains has heightened public attention as to the issue of modern slavery and forced labor. For example, headline news speak of children working in cobalt mines for the Apple and Samsung supply chains, Syrian refugees working under terrible circumstances for garment supply chains in Turkey, and North African migrants working in agriculture in Italy and Spain. In fact, the International Labor Organization estimates that 21 million people are victims of forced labor, of which 44% are migrants. In total, forced labor generates an estimated $150 billion in illegal profits every year. Moreover, a recent survey by Ethical Trading Initiative (ETI) found 71% of companies suspect the presence of modern slavery in their supply chains.

The U.S. and other governments are taking action to reduce supply chain slavery. For example, according to reports by Reuters in early June, the U.S. Customs and Border Protection seized low-calorie sweetener stevia imported from China by PureCircle Ltd. The plant extract is used to sweeten Coca-Cola Life, Pepsi True, and other soft drinks. The U.S. alleged that PureCircle sourced the Stevia rebaudiana plant (from which the sweetener is extracted) from a company accused of using forced labor. This was the third time the U.S. has cracked down using a new law that bans imports of products made by forced labor.

The new law, the Trade Facilitation and Trade Enforcement Act, signed by President Obama in February 2016, forced an 86-year-old ban on importing goods made by children or slaves. The Tariff Act of 1930, which gave U.S. Customs the authority to seize shipments where forced labor was suspected and block further imports, was last used in 2000, and has been used only 39 times altogether largely because of two words: “consumptive demand” — if there was not sufficient supply to meet domestic demand, imports were allowed regardless of how they were produced. The Trade Facilitation and Trade Enforcement Act eliminated that language, allowing stiffer enforcement. To start an investigation, U.S. Customs needs to receive a petition from anyone — a business, an agency, even a non-citizen — showing “reasonably but not conclusively” that imports were made at least in part with forced labor.

But modern slavery is difficult to detect, particularly when compared to other crimes. For example, an organization and regulator can monitor corruption involving an electronic trail of payment or expense. Modern slavery, however, involves the conditions surrounding the workforce, which often rely more on qualitative evidence such as interviews and observation than documentation. This is why it’s also critical that companies also do their part to find the practice of forced labor on their own and take steps to end it. In fact, there is growing pressure on company risk managers to undertake a much more focused approach to supply chain management, according to Andrew Boutros, a former U.S. attorney, and partner in the Chicago office of Seyfarth Shaw, who was quoted in a recent article in Risk & Insurance (R&I). Social awareness and greater regulatory enforcement along with the potential of monetary and reputational damage is increasingly getting companies not only to be responsible for their own integrity but also for the acts of their third-party suppliers.

Proactive Steps for Companies to Take

Following are three critical areas that should be addressed within organizations looking to reduce supply chain risks connected with slave labor, as outlined in the R&I article:

  • Organizational leadership and the board need to make combating slave labor a part of their corporate mandate and be committed to educating, training and building awareness.
  • Prevention and detection controls should be included in the supply chain vetting process, not just internally using vendor pre-approval, but by extending the obligations and awareness of the anti-slavery mandate to all vendors.
  • Investment in auditing, monitoring and/or investigative measures needs to take place, with procurement and risk professionals accountable internally and vendors equally accountable. A whistleblower hotline should be set up to report grievances.

About Roanoke Underwriting

Roanoke Underwriting serves the commercial marine insurance and customs bond needs of agents and brokers throughout North America working with supply chain risks and logistics service providers. For more information about our products, please contact us at 1.855.213.4545.

 

Sources: AP, Risk & Insurance, Global Slavery Index