Slavery in Supply Chains: CBP Petitions Raise New Forced Labor Compliance Risks

Forced Labor Ban Petitions
Petitions seeking to ban products made with forced labor are filed pursuant to Section 307, which prohibits the importation of “goods, wares, articles and merchandise mined, produced, or manufactured wholly or in any part in any foreign country by convict labor or/and forced labor or/and indentured labor.” Under Section 307 and the implementing regulations, if CBP has reason to believe that any class of merchandise subject to the ban is in fact being, or likely to be imported into the United States, it may initiate an investigation. These investigations may result in the issuance of detention or withhold-release orders (WROs) of the merchandise or in exclusion and/or seizure orders. The regulations provide importers with an opportunity to provide proof of admissibility in response to actions taken by CBP to enforce the import ban.

Since 2016, after an exception to Section 307 was eliminated under the Trade Facilitation and Trade Enforcement Act of 2015, CBP has increased the instances of enforcement of the import ban. For example, CBP issued WROs on importations from specific Chinese producers of soda ash, calcium chloride, caustic soda, stevia and its derivatives, peeled garlic, and toys. The agency also issued WROs on tuna and tuna products from a Taiwanese fishing vessel, as well as a countrywide WRO on cotton from Turkmenistan.

North Korean Forced Labor
In 2017, the Countering America’s Adversaries through Sanctions Act (CAATSA) strengthened Section 307’s import ban as it relates to goods from North Korea. CAATSA established a rebuttable presumption of the use of forced labor in connection with goods made by North Koreans, prohibiting importation of goods “mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens… unless CBP finds through clear and convincing evidence that the merchandise was not produced with a form of prohibited labor.” Prohibited forms of labor include slave, convict, indentured, forced or indentured child labor. According to a U.S. Government advisory, the North Korean government “exports large numbers of laborers to fulfill a single contract in various industries,” including the apparel, construction, footwear manufacturing, hospitality, information technology services, logging, medical, pharmaceuticals, restaurant, seafood processing, textiles, and shipbuilding industries. To date, CBP has withheld the release of 15 shipments of seafood made by North Korean workers under this law.

In addition to import bans, U.S. persons can face monetary and criminal penalties for importing goods from North Korea. The Department of Treasury Office of Foreign Assets Control (OFAC) North Korea Sanctions Regulations (NKSR) prohibit the importation of goods, services and technology from North Korea. Violations of OFAC sanctions can result in monetary penalties of up to $302,584 per violation or twice the amount of the underlying transaction (whichever is greater). Violations can also result in criminal fines of up to $1 million per violation or twice the amount of the gross gain or loss arising from the offense (whichever is greater), along with up to 20 years in prison for individuals.

In January 2019, OFAC announced a $996,080 settlement agreement with California-based e.l.f. Cosmetics, Inc. (ELF), to settle the company’s claims for apparent violations of the NKSR, including those involving importation of goods from North Korea. Specifically, ELF imported 156 shipments of false eyelash kits from suppliers located in China that contained material sourced by these suppliers from North Korea. In its web notice (available here), OFAC noted that the company’s OFAC compliance program was “either non-existent or inadequate” during the time the apparent violations occurred. This action is consistent with a U.S. Government advisory that identifies the “inadvertent sourcing of goods, services, or technology from North Korea” as a primary risk for companies, and, according to OFAC, “highlights the risks for companies that do not conduct full-spectrum supply chain due diligence when sourcing products from overseas, particularly in a region in which [North Korea], as well as other comprehensively sanctioned countries or regions, is known to export goods.”

CBP Petitions at the Horizon
The growing fight against corporate modern slavery is expected to result in increased petitions for CBP forced labor bans. Indeed, just last month, Humanity United and the Freedom Fund, the latter an international anti-modern slavery nonprofit organization, joined forces to establish the Tariff Act Legal Fund, an investigations and petitions legal fund which seeks to build momentum toward enforcement of the forced labor import ban by funding the investigation, preparation and filing of forced labor import ban petitions to CBP. Petitions funded by the Legal Fund would target goods listed on the U.S. Department of Labor List of Goods Produced with Forced and Child Labor.

Accordingly, as more and more petitions are being filed with CBP seeking to ban the importation of goods made with forced labor, U.S. companies whose supply chains rely on foreign components should consider incorporating appropriate corporate modern slavery due diligence and supply chain compliance into their own compliance framework. Doing so is particularly critical for companies sourcing goods from high-risk countries that might benefit from forced labor. In addition, companies should proactively conduct employee training on how to identify signs of forced labor, perform an internal review of existing policies and procedures to identify areas that may be subject to exploitation (and make needed corrections) and assess their existing and prospective suppliers’ and contractors’ labor practices.

Forced labor and other instances of human trafficking constitute a multibillion-dollar criminal industry where traffickers use force, fraud or coercion to control their victims. Proactively engaging in corporate modern slavery compliance is thus necessary from both a corporate social responsibility and risk management perspective. Indeed, not only is it an effective way to play a significant role in the fight against exploitation, but it also reduces business and legal risk by mitigating a company’s significant exposure to potential corporate liability.

For more information about the forced labor import ban and related North Korea sanctions, please see here and here.