The US has joined the growing list of countries requiring deeper dives into supply chains, with the passing of the Slave-Free Business Certification Act. Senators Josh Hawley (R-MO) and Kirsten Gillibrand (D-NY) introduced a bill earlier this month that will require auditing of large companies to identify if they are, or are not using forced labor activities within their supply chains.
In discussions about the bill, Senator Gillibrand commented,
“This bill is an important step towards ending the use of forced labor by holding businesses accountable for the workers used throughout their supply chains.”
Senator Kirsten Gillibrand
The Slave-Free Business Certification Act:
Hawley commented after an earlier version of the bill was introduced in 2020,
“If corporate America wants to be the face of social change today, they should have to certify they are completely slave-free. Participate in independent audits to verify it and disclose steps to ensure slave labor won’t become part of the equation later on. And if they refuse to do so, they should pay the price. That’s social responsibility.”
Senator Joseph Hawley
The bill applies to companies that make at least $500 million in annual revenue, in industries such as manufacturing and production of products like cellphones and clothes, as well as mining. It requires companies that fall within its scope to conduct regular audits to make sure that forced labor is not present within their supply chains. The audits must be submitted to the US Labor Department and made available to the public. The Labor Department, in turn, will report on companies that fail to comply with this bill.
The Act’s auditing and investigation process for compliance with this bill is detailed, and will involve:
This Bill is one of multiple acts of legislation targeting forced labor activities within corporations. In late December, President Biden passed the Uyghur Forced Labor Prevention Act, which requires that organizations certify that they are not funding forced labor within China’s Xinjiang region.
While the Slave-Free Business Certification Act focuses specifically on disclosing forced labor activities, it is also of utmost importance that organizations take proactive measures to eliminate these activities.
In order to meet this increased focus, companies must establish risk-based supply chain due diligence to identify high-level risks, eliminate unethical practices, continuously monitor third parties, and more. Extensive due diligence, initial, and continuous monitoring of all activities are a key component to many new forced labor and Environmental, Social, Governance (ESG)-related regulations on the horizon. Having an effective TPRM program that performs this level of due diligence will be critical in addressing these issues.
It is important to note that the Slave-Free Business Certification Act also requires that CEOs ensure and certify that forced labor is not present within their supply chains, or that any instances are reported on. This legislation targeting the Board is something businesses are seeing more and more of.
Recent Aravo research found that 34% of businesses indicated that third-party risk management was not a key priority for their board with only a low level of oversight. This lack of knowledge on boards’ parts is a risk in and of itself. Not only can it be an indicator of a disconnect regarding hidden risks within third parties and supply chains (such as forced labor activities), but it is increasingly having regulatory impacts. Recently, governance from authorities is demanding that boards are responsible for these incidents and can be liable if they do not have a handle on these risks.
To learn more about how to identify and mitigate forced labor and ESG risks within your supply chains, get in touch with one of Aravo’s experts!
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