Navigating Forced Labor Laws in the U.S. and the UK. March 23, 2017

Transcription

1 Navigating Forced Labor Laws in the U.S. and the UK March 23, 2017

2 Today s Presentation UK Modern Slavery Act 2015 The California Transparency in Supply Chains Act Trade Facilitation and Trade Enforcement Act of 2015 Section 307 Targets of enforcement Possible future developments Compliance plan Case study Hogan Lovells 2

3 UK Modern Slavery Act 2015

4 UK Modern Slavery Act 2015 Background Directly inspired by California Transparency in Supply Chains Act First legislation of its type in Europe Requirement to publish statement describing steps taken to ensure there is no slavery or human trafficking taking place in the business or supply chains Senior level accountability - director or equivalent level sign-off required The provision seeks to create a race to the top by encouraging businesses to be transparent about what they are doing, thus increasing competition to drive up standards UK government guidance document Hogan Lovells 4

5 UK Modern Slavery Act 2015 (continued) An overview Statement must describe steps taken by organization to ensure that slavery and human trafficking are not taking place in its business and supply chains, or must state that no steps have been taken Applies to any organization (body corporate or partnership) wherever incorporated that: Supplies goods or services Carries on its business, or any part of its business, in the UK A common sense approach / a demonstrable business presence Meaning still uncertain and open to different interpretations Has an annual turnover of at least 36m (including turnover of any subsidiaries) Statements required for each fiscal year ending on or after March 31, organizations expected to publish statement within six months of year financial end December 31 fiscal year end = effective deadline of June 30, 2017 Hogan Lovells 5

6 UK Modern Slavery Act 2015 (continued) Statement content MSA says that a statement may include information about: Policies in relation to slavery and human trafficking Due diligence processes in its business and supply chains Parts of business and supply chains where there is risk, and steps taken to assess and manage risk Effectiveness in ensuring that slavery and human trafficking is not taking place in business or supply chains Staff training about slavery and human trafficking Statutory guidance Further detail on what may be included in statement Sets out best practice in relation to due diligence Hogan Lovells 6

7 UK Modern Slavery Act 2015 (continued) Publication Approved by the board and signed by director Published on company website with link in prominent place on homepage Groups Each group company strictly needs to report only on its own business and supply chains Where more than one group company is covered, a single statement can be used What does this mean exactly? Is it enough for the UK/ultimate parent company to publish? Or must each group company approve, director sign, and publish? Hogan Lovells 7

8

9 UK Modern Slavery Act 2015 (continued) Enforcement Government can seek civil injunction but likely to issue informal warnings first Failure to comply with injunction a criminal offense Public scrutiny/reputation impact the primary incentive for compliance No personal liability on part of director Hogan Lovells 9

10 UK Modern Slavery Act 2015 (continued) Government guidance Confirms an expectation that annual statements will improve over time as organizations make progress in tackling modern slavery Prefers statements to be simple and succinct with links to further policies and documents Reminds organizations that statements should be true and refer to actual steps undertaken Recommends placing statement prominently on the home page of: More than one website, if there are multiple websites, or The most appropriate website relating to the organization s business in the UK Hogan Lovells 10

11 California TSCA and UK MSA: at a glance California TSCA UK Modern Slavery Act Application Manufacturers and retailers Suppliers of goods or services Turnover threshold $100m 36m Jurisdictional nexus California Revenue and Taxation Code Demonstrable business presence Extent Direct supply chain for tangible goods for sale Business and supply chains Content Prescriptive Suggestive Publication Website with conspicuous and easily understood link on homepage (or copy on request) Website with prominent link on homepage (or copy on request) Signature Not required Required Frequency Not specified Each financial year Enforcement Civil injunction Civil injunction Hogan Lovells 11

12 UK Modern Slavery Act 2015 (continued) Where to start? Risk exposure in business and supply chains Assessment and reporting Map high risk sectors and jurisdictions Developing risk management policies and systems Identify any gaps in existing information and systems Engagements with suppliers and other stakeholders Hogan Lovells 12

13 UK Modern Slavery Act 2015 (continued) What can companies do in relation supply chains? Companies are frequently disclosing, amongst other things: Clear procurement policies and supplier codes of conduct, and explaining minimum expectations of suppliers Including protections in standard supply contract terms Expanding existing compliance and risk management programs Including human rights-related red flags into supplier selection processes Establishing supply chain due diligence and audit processes (e.g., supplier certification, audit rights) to facilitate the identification How identified risks are resolved i.e., approach to suppliers who fail to tackles risks or meet standards Development of key performance indicators Hogan Lovells 13

14 UK Modern Slavery Act 2015 What makes a good statement? Companies need to determine correct level of due diligence and other actions to satisfy customers, investors, public, and other stakeholders Features of a good statement Compliance with legal requirements Avoiding overuse of templates and stock language Supply chain detail and risk assessment Wide involvement Inclusion of metrics for judging success Examples of good statements: Marks & Spencer, British American Tobacco, SABMiller, Vodafone Unofficial register at: Hogan Lovells 14

15 The California Transparency in Supply Chains Act

16 California Transparency in Supply Chains Act The California Transparency in Supply Chains Act, which became effective on January 1, 2012, claims to empower California consumers to join the fight against human trafficking by giving them access to information about retailers and manufacturers efforts to eradicate such labor practices from their supply chains. Does not mandate that businesses implement measures to ensure that their supply chains are free from human trafficking and slavery The law only requires that covered businesses make the required disclosures even if they do little or nothing at all to safeguard their supply chains Companies must disclose particular information within each disclosure category, and the Act offers companies discretion in how to do so Hogan Lovells 16

17 California Transparency in Supply Chains Act (continued) Requires companies to make disclosures about efforts to avoid forced and child labor in supply chains Companies must make disclosures relating to five different categories specified in the Act No substantive requirements for companies not to engage in forced or child labor Violations can result in an action brought by the California Attorney General for injunctive relief Hogan Lovells 17

18 Who Must Comply The Act covers any company that: Does business in California, defined broadly to include any company that files a California tax return, Identifies as a retail seller or manufacturer on its California tax return, and Has annual worldwide gross exceeding $100 million, whether earned inside or outside California. Any company that meets the criteria must make the required disclosures Hogan Lovells 18

19 Disclosure Format and Location Key requirement is that the disclosure link is conspicuous, easily understood, and located on retailer s and manufacturer s homepages Generally understood to be the page first encountered on a website that typically contains links to other pages of the site Includes corporate and brand web sites Link should send the viewer directly to a webpage with the required disclosure information without several links in between The link must have both a conspicuous location and conspicuous text Disclosures must be posted on the retail seller s or manufacturer s Internet Web site with a conspicuous and easily understood link to the required information placed on the business homepage. Hogan Lovells 19

20 Disclosure Content Verification To what extent does company evaluate and address risks of human trafficking and slavery in its product supply chains? (The answer can be No actions ) Supplier Audits How does company audit its suppliers to determine whether the supplier complies with the company s policy on trafficking and slavery in supply chains? Certification Internal Accountability Does company require direct suppliers to certify that materials incorporated into the product comply with the human trafficking and slavery laws of the countries in which it does business? What internal accountability standards does company have for employees and contractors? Training What training programs does company have for personnel who oversee product supply chains? Hogan Lovells 20

21 Trade Facilitation and Trade Enforcement Act of 2015

22 Consumptive demand exception Consumptive demand exception reason for limited enforcement of Section 307 Trade Facilitation and Trade Enforcement Act of 2015 (TFTE) eliminated consumptive demand exception Effective March 10, 2016 Note: Forced labor includes forced or indentured child labor [I]n no case shall such provisions be applicable to goods... which are not mined, produced, or manufactured in such quantities in the United States as to meet the consumptive demands of the United States. Hogan Lovells 22

23 Tariff Act of 1930, Section 307 All goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions. 19 U.S.C. 1307

24 Civil enforcement of Section 307

25 Civil enforcement Civil enforcement by U.S. Customs and Border Protection (CBP) No written procedures Only guidance in archaic regulations which still include consumptive demand To date, CBP has only initiated civil investigations by petition, but has indicated it will begin to self-initiate investigations Hogan Lovells 25

26 Petitions CBP encourages any person who reason to believe that merchandise produced by forced labor is being, or is likely to be, imported to the United States to report A petition must contain three elements: A full statement of reasons for the belief A detailed description or sample of merchandise All pertinent facts obtainable as to the production of the merchandise abroad No timeline for CBP to review petitions You won t know if a petition is filed unless the petitioner makes it public (e.g., ILRF) Any person includes: Fair trade groups Human rights groups Competitors Hogan Lovells 26

27 Withhold release orders If petition reasonably, but not conclusively, demonstrates that goods are: Being produced wholly or in part by forced labor, At any point in its supply chain, and Being, or likely to be, imported into the United States Then CBP will initiate an investigation Note that reasonable suspicion is a low threshold CBP will inform a company subject to an investigation via letter and issue a withhold release order (WRO) A WRO blocks the shipment from entry into the United States, at the importer s expense CBP will initiate investigations of specific shipments from specific companies If information conclusive, CBP can seize goods without an investigation Hogan Lovells 27

28 Investigations A company will have three months from the letter to contest the investigation Two required documents Certificate of origin by the importer Statement of the ultimate consignee of the goods. The statement must include: Ultimate consignee made every reasonable effort to determine the source of the good and of each of its components and to ascertain the character of labor used at each stage of production Results of ultimate consignee s investigation Class of labor believed to be used at each stage of production [T]he Commissioner... will consider any representations offered by foreign interests, importers, domestic producers, or other interested persons. 19 C.F.R (d) Hogan Lovells 28

29 Investigations (continued) CBP will not provide standards or best practices for a safe harbor from a Section 307 investigation In past investigations, importers have: Submitted letters to CBP Met with CBP officials Worked with foreign embassies, interest groups, and trade associations to provide information to CBP Importers should also consider submitting the following information: Results of company audits Third-party verifiers Supply chain policies Comparisons to local labor law in the foreign country Importers can also export goods out of the United States at any point during the investigation. The company is responsible for any storage expenses during the investigation, including for perishable goods. Hogan Lovells 29

30 Civil penalties If CBP satisfied, based on importer s representations, that goods subject to WRO are not produced with forced labor Merchandise will be released Hogan Lovells 30

31 Civil penalties (continued) If CBP concludes that goods fall under Section 307 CBP must publish findings in the Federal Register CBP will seize goods and initiate forfeiture proceedings Hogan Lovells 31

32 Civil penalties (continued) To initiate a seizure, CBP must have probable cause to believe that there was a violation of customs law or other law enforced by CBP with respect to specific goods If property is seized, the seizure represents enforcement action against the property (i.e., a claim for forfeiture) Hogan Lovells 32

33 CBP penalty statute Throughout the Section 307 process, the importer must not make material false statements, acts, or omissions in connection with their importations or else face monetary penalties (19 U.S.C. 1592) False statements, acts, or omissions must result from the parties : Negligence, Gross negligence, or Fraudulent conduct CBP has discretionary authority to determine the level of culpability and imposition of corresponding monetary penalties Hogan Lovells 33

34 Criminal enforcement of Section 307

35 Criminal enforcement Criminal enforcement by U.S. Immigration and Customs Enforcement (ICE) ICE self-initiates criminal investigations But CBP and ICE share information and assist each other s investigations ICE could use a CBP investigation to initiate its own investigation Hogan Lovells 35

36 18 U.S.C. 545 ICE would likely bring criminal charges under 18 U.S.C. 545 Section 545 contains several elements: Fraudulently or knowingly Importing a good into the United States Contrary to law (i.e., contrary to Section 307) Knowing that the importation is contrary to law Knowledge can be demonstrated through public statements, even public statements about efforts to prevent forced labor in supply chains Proof of defendant s possession of such goods, unless explained to the satisfaction of the jury, shall be deemed evidence sufficient to authorize conviction for violation of this section. 18 U.S.C. 545 Hogan Lovells 36

37 Targets of enforcement

38 U.S. Department of Labor Forced Labor Lists CBP does not generally target entire product lines or industries in problematic countries or regions. However, CBP may use the DOL lists as source documents for research purposes. Trafficking Victims Protection Reauthorization Act (TVPRA) Mandates DOL to work with producers on the list to set standards to eliminate forced labor practices Work with other U.S. government agencies to ensure that products made by forced or child labor are not imported into the United States Executive Order Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor Intended to ensure that U.S. federal agencies do not procure goods made by forced or indentured child labor Hogan Lovells 38

39 Possible future developments

40 More enforcement actions CBP and ICE are under pressure to show enforcement actions to Congress CBP has created a Trade Enforcement Task Force CBP has significantly increased staffing since March new hires to investigate forced labor Funding to hire 9 foreign attachés CBP has not yet amended the regulations to comport with the updated law Hogan Lovells 40

41 More enforcement actions (continued) CBP issued a handful of WROs after elimination of consumptive demand exception on March 29, 2016: Soda ash, calcium chloride, caustic soda, and viscose/rayon fiber from China Potassium, potassium hydroxide, and potassium nitrate from China Stevia and its derivatives from China Peeled garlic from China The International Labor Rights Fund also released a petition for CBP to ban all cotton from Turkmenistan The petition specifically identified Ikea Group s Nyponros and Malou linen products We know of the challenges that exist in the cotton industry in Turkmenistan when it comes to forced labor. Therefore, we have implemented enhanced controls and third-party testing in the cotton fields and in production. Ikea quote used Hogan in petition Lovells 41

42 New regulations CBP will also propose new regulations Draft regulations already under review by Department of Homeland Security and ICE Scale of new regulations remain TBD Now likely to cover 19 C.F.R , rather than only eliminating consumptive demand requirements Timing for issuance of regulations is unknown Possibly subject to appointment/confirmation of new Commissioner of Customs and other political appointees Possible issues Transparency Time limits New regulations would be subject to notice and comment Hogan Lovells 42

43 Compliance plan

44 What standards/practices do CBP and ICE look for? CPB and ICE have not provided standards or best practices that would give a company safe harbor from a Section 307 investigation CBP issued a 1-page document, Supply Chain Due Diligence, which states that companies should have a comprehensive and transparent social compliance system in place and that supply chain audits can evaluate risks DOL publishes lists of high-risk products/countries Hogan Lovells 44

45 The hallmarks of a strong forced labor compliance plan Importers and ultimate consignees should develop a compliance system: Policies and code of conduct Identify, assess, and manage product supply chains, including third parties Training and awareness Audits Certifications of compliance Internal accountability standards with disciplinary components CSR policies displayed on website Hogan Lovells 45

46 Case study: Stevia and its derivatives from China

47 Stevia and its derivatives from China May 20, 2016: WRO blocking Stevia and its derivatives from China from certain manufacturers, including PureCircle Based on NGO petition with little proof of forced labor No specific deadline for lifting WRO, even with documentation and proof that no misconduct occurred in supply chain Lack of clear guidance as to what constitutes sufficient evidence for CBP or even of timelines for CBP action on a response to a WRO Eight months of seizures of all Stevia before order lifted for PureCircle s Stevia PureCircle had: Extensive information on website Reports of a third party supply chain audit Records of its policies, procedures, and audits Despite these measures, CBP still took an unduly long time to resolve Hogan Lovells 47

48 WRO on PureCircle Stevia: Takeaways Establish lines of communication with CBP early on in the process Detention notices come from port officers, but everything else is handled at HQ Traceability data can be critical to resolution Beyond contents of statement of ultimate consignee (19 C.F.R ) Primary source documents if possible Start with a small data sample to determine what CBP is actually seeking Walk through data with CBP Be prepared for CBP to issue a press release PR strategy Financial reporting Hogan Lovells 48

49 Questions?

50 Today s Presenters Chandri Navarro Partner, Washington, D.C. T chandri.navarro@hoganlovells.com Areas of Focus International Trade and Investment For over 20 years, Chandri has advised clients on customs and trade issues in many different countries and before foreign trade and customs agencies. Chandri works with companies, multinationals, trade associations, and governments on customs and trade law and policy, trade compliance matters, free trade negotiations, litigation, and legislation. Chandri helps clients resolve trade issues before the U.S. Customs and Border Protection (CPB), Office of the U.S. Trade Representative, Department of Commerce, U.S. Congress, and the Court of International Trade. Kevin O'Connor Senior Associate, London T kevin.oconnor@hoganlovells.com Kevin advises on the environmental, health and safety, and social aspects of corporate, real estate and finance transactions and on standalone advisory matters, and has particular experience in the oil and gas, nuclear, transport, and industrials sectors. He advises on matters including environmental regulation; nuclear regulation and liability; REACH and chemicals regulation; environmental and social transparency and disclosure requirements (including UK Modern Slavery Act statements); and EU regulation (e.g. WEEE, RoHS, batteries and packaging waste). Areas of Focus Environment, social, health and safety Hogan Lovells 50

51 Today s Presenters (continued) Aleya Champlin Group IP and Commercial Counsel, PureCircle Ltd. T aleya.champlin@purecircle.com Areas of Focus Commercial Transactions Regulatory Compliance Intellectual Asset Management Aleya is Group IP and Commercial Counsel for PureCircle Ltd., the world s leading producer of high-purity stevia ingredients. In her role, Aleya provides counsel on matters relating to PureCircle s supply chain management, commercial growth, and technical innovation. She has been advising global food and beverage clients for over two decades, including representation before the U.S. FDA, the U.S. PTO, and international government agencies. T Hogan Lovells 51

52 "Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. The word partner is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing.. Certain individuals, who are designated as partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members. For more information about Hogan Lovells, the partners and their qualifications, see Where case studies are included, results achieved do not guarantee similar outcomes for other clients. Attorney advertising. Images of people may feature current or former lawyers and employees at Hogan Lovells or models not connected with the firm. Hogan Lovells All rights reserved