California Transparency (SB 657): Eradicating Slavery and Human Trafficking Questions and Answers
Q: What is the California Transparency in Supply Chains Act and who does it impact?
A. The Act requires retailers and manufacturers doing business in California to publicly disclose their efforts to eradicate slavery and human trafficking in their supply chains. Specifically, they must state to what extent if any they undertake five specific activities intended to help them identify and mitigate the risk of slavery and human trafficking in their supply chains. They are: 3rd party verification of risk, independent and unannounced supply chain auditing, certification of compliance from direct suppliers, internal accountability mechanisms and provision of training.
The law applies to manufacturers and retailers with more than $100 million in worldwide gross receipts who do business in California. Also, companies who sell to a buyer to whom the Act applies will need to be aware of the disclosure requirements as they are part of the large retailer’s or manufacturer’s direct supply chain.
Q. Does the Act apply only to companies based in California?
A. No. California is the 8th largest economy in the world and many companies do business in this state. This legislation will have far reaching effects for thousands of national and international manufacturers and retailers, regardless of where they are located. Applicability is determined by tax status, so your legal counsel should review the legislation and determine how your business is classified under the CA tax code.
Q. Why was the California Transparency in Supply Chains Act enacted?
A. The Act is intended to bring visibility to an important issue that has been hidden in our society. By requiring companies to publicly disclose, many will feel pressured to take action in an area where other players do not have leverage to create change. In addition, the public disclosures required by the Act will help consumers make more informed purchasing decisions, so they can choose to use their buying power to support companies that are making an effort in this area.
Q. Do most companies already have processes in place to track labor abuses in their supply chains?
A. Yes and no. Many industries currently operate responsible sourcing programs to monitor labor conditions in their supply chain. These programs set standards on issues like wages, work hours and child labor and include auditing of supplier performance to these standards.
While forced labor is a common issue addressed in these programs, slavery and human trafficking is not. And labor exploitation is not the same as slavery. These companies will have to adapt their programs to ensure coverage of the issues under the Act. And of course, companies that do not currently have responsible sourcing programs will have farther to go to prepare their disclosures under this Act.
Q. How big of a problem is slave labor and human trafficking?
A. There are more slaves now today than at any time in human history. While it’s difficult to collect data on these clandestine activities, the non-governmental organization Free The Slaves estimates there are as many as 27 million people in modern-day slavery around the world. According to the International Labour Organization, more than 2.4 million are in forced labor as a result of human trafficking. But you don’t have to cross an international border to be trafficked; nearly 250,000 US citizens are trafficked within the US, each year.
Also, trafficking is not defined by immigration status or business sector. Trafficking victims can be found working on farms or in factories. Retailers and manufacturers, whether sourcing from overseas or within the U.S., should be aware of the very real risk of slavery and human trafficking in their supply chains.
Q. How do you identify slavery and human trafficking in the supply chain? What are the best practices for doing this?
A. The disclosure elements of the Act itself actually reflect best practices; the first point of public disclosure being 3rd party verification. This means working with a 3rd party to identify the overall risks of slavery and human trafficking in your supply chain, including mapping your actual supply chain, looking into what countries you source from and what products or services you buy.
After you have identified risk areas within your supply chain, the next best practice would be to conduct independent, unannounced audits. This is the second disclosure requirement of the Act. Auditing means you first set standards that explicitly address slavery and human trafficking and then audit against these. One thing to keep in mind is while labor exploitation may be identified at the employment site, in order to pin point whether the exploitation was a result of human trafficking, you may have to audit the recruitment source, such as labor brokers or employment agencies, and they may be overseas.
Another important part of supply chain management, which is reflected in the Act, is to obligate your direct suppliers to comply with laws on slavery and human trafficking down their respective supply chains. This serves to address the risk that workers who are involved in producing your product, but who are farther down your supply chain, may be affected by slavery and human trafficking. To do this, you will need information on the country’s legal framework on slavery and human trafficking. In some countries, such as Venezuela and Turkmenistan no laws on human trafficking have been enacted or existing regulations are not enforced, which would increase risk.
The fourth disclosure element of the Act is internal accountability standards and procedures. It is a best practice to hold your employees accountable for non-compliances with your standards on slavery and human trafficking. Just like with ethical compliance and corruption, you need to hold your employees and contractors accountable.
Lastly, another best practice is training your employees, especially those in charge of supply chain management, to understand what slavery and human trafficking are and how to mitigate the risk of them in their supply chain. This is the last disclosure element of the Act.
Q. So, what do companies have to do to get in compliance?
A. Companies are not required to engage in these best practices, but they have to disclose to what extent if any they do engage in these activities. For those retailers and manufacturers who have an Internet website, they need to post a conspicuous link to the required information on their homepage. And if they do not have a website, consumers must be mailed a written disclosure within 30 days of making a request to the company.
So, the important steps are: First, identify what activities listed in the Act you undertake at your company and second, identify to what extent you do them. Then determine how you want to word that public disclosure.
And this has to be up and running on January 1, 2012. This is a big job and companies need to begin preparing now.
Q. What are the penalties for non-compliance?
A. The exclusive remedy for a violation is injunctive relief by the Attorney General; in other words, not a monetary penalty, but an order by the Attorney General to take specific action. That means legal punishment for failing to disclose is not that severe. However, the Franchise Tax Board will annually provide to the Attorney General a list of retail sellers and manufacturers required to disclose. So non-compliances can be identified quickly.
Q. Do you expect other states, or even the federal government, to pass similar disclosure laws around slavery and human trafficking?
A. There are several state bills addressing slavery and human trafficking concerns that are currently being considered. However, to our knowledge, a bill similar to the CA Transparency in Supply Chains Act is not being considered by any other state. However, Congresswoman Maloney from New York has publicly announced her intent to file a federal bill similar to the CA Transparency in Supply Chains Act and the upcoming reauthorization of the federal Trafficking Victims Protection Act (2000) may introduce more regulations.
Q. There seem to be more laws being passed that relate to transparency in the supply chain – what other issues are you working on right now?
A. Conflict minerals is another big area requiring public disclosure. Under the Dodd-Frank Wall Street Reform Act, companies that use tin, tantalum, tungsten or gold in their products are required to disclose the origin of those minerals and report on their due diligence efforts to identify the country of origin. We’re working with companies and industry associations to conduct traceability audits in the minerals supply chain as part of their due diligence efforts.
Q. How can UL-STR Responsible Sourcing help companies respond to and comply with this stepped up focus on social responsibility transparency?
A. We have developed tools and services to identify and mitigate risks in your supply chain, to train your employees and suppliers on such risks, and to create internal processes and procedures to ensure efficient and effective supply chain management.
When it comes to disclosure on slavery and human trafficking or sourcing minerals from conflict areas, we can assist you with legal compliance and going beyond such compliance to engage in best practice.
Contact us to find out more about how UL Responsible Sourcing can help your company respond to and comply with this stepped up focus on social responsibility transparency.