In the wake of National Slavery and Human Trafficking Prevention Month in January 2013[1] and recent legal measures aimed at eradicating human trafficking, companies should take steps to ensure their operations and supply chains are free of forced labor and other severe forms of trafficking.  The US government estimates that as many as 27 million persons globally[2] are victims of trafficking in persons, involving the use of force, fraud, or coercion to obtain labor or commercial sex acts.[3]  Companies associated with human trafficking not only face serious legal and enforcement risks,[4] but also risk severely tarnishing their brands in the eyes of consumers, investors, employees, and other stakeholders.  Forced labor can occur in any industry.  Those relying on overseas, migrant, or low-wage workers – such as mining, construction, agriculture, manufacturing, textiles, and hospitality – are most at risk.[5]  Several recent initiatives have tightened anti-trafficking legal requirements for government contractors, but also provide useful guidance for all businesses seeking to root out modern day slavery from their supply chains.  This advisory surveys recent developments in this area and outlines steps companies can take to update their ethics and compliance programs to address trafficking-related risks.

  1. Recent Anti-Trafficking Developments for Businesses
  1. Trafficking Victims Protection Reauthorization Act of 2013

On February 12, 2013, the US Senate approved the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2013 as an amendment to the Violence Against Women Reauthorization Act of 2013.[6]  The TVPRA of 2013 would reauthorize appropriations from 2014-2017 for various programs designed to assist victims of trafficking, impose additional reporting and accountability measures on government agencies involved in anti-trafficking programs, and enhance anti-trafficking measures in existing laws.  Among other measures, the TVPRA of 2013 directs various US government agencies to establish partnerships with private entities, including corporations, to ensure that US citizens do not use materials produced with the use of trafficked labor and that private entities do not contribute to trafficking in persons involving sexual exploitation.[7]  It also would amend the Racketeer Influenced and Corrupt Organizations Act (RICO), which already includes peonage, slavery, and trafficking in persons as predicate offenses,[8] to also include fraud in foreign labor contracting as a predicate offense for RICO violations.[9]  The US House of Representatives will now consider the bill.

  1. Heightened Requirements and Sanctions for Government Contractors

Federal government contractors have long been prohibited from engaging in human trafficking.  The Trafficking Victims Protection Act of 2000 (TVPA), for example, prohibited contractors, subcontractors, and their employees from engaging in severe forms of trafficking, procuring a commercial sex act, or using forced labor in the performance of a US government contract or subcontract.  Since 2006, the Federal Acquisition Regulation (FAR)[10] have restated this prohibition, and also required contractors to immediately inform their contracting officer if they receive “[a]ny information…from any source (including host country law enforcement) that alleges a Contractor employee, subcontractor, or subcontractor employee has engaged in” severe forms of trafficking, procuring a commercial sex act, or using forced labor in the performance of a contract.  The FAR otherwise provided little specific guidance for contractors seeking to comply with these requirements.  A recent executive order and an amendment to the Fiscal Year 2013 National Defense Authorization Act (NDAA) aim to both strengthen protections against trafficking in persons in federal contracts and add certain compliance requirements to the existing regulatory landscape.

  • Executive Order “Strengthening Protections Against Trafficking In Persons In Federal Contracts”

On September 25, 2012, President Obama issued an executive order, “Strengthening Protections Against Trafficking In Persons In Federal Contracts,”[11] to help ensure that US government contracts are performed free of trafficking and forced labor.  Reminding the business community that the US government is “the largest single purchaser of goods and services in the world,” the Order aims to provide those that contract with the US government with tools to enforce existing anti-trafficking policy and further clarify the steps that federal contractors and subcontractors must take to fully comply with anti-trafficking requirements.  The Order calls for steps to be taken in early 2013 to amend the FAR to prohibit a list of specific trafficking-related activities, including charging recruitment fees to employees; denying employees access to their passports, drivers' licenses, and other identification documents; and using misleading recruitment practices such as materially misrepresenting the amount of wages, living conditions, and the work location.  Further, in contracts performed outside the United States, contractors and subcontractors with overseas projects must pay return transportation costs at the end of employment for third-country nationals who travelled for the purpose of working on the contract, unless certain very limited exceptions apply.

The regulations implementing the Order will also require that federal contractors and subcontractors agree in their contracts to allow for anti-trafficking compliance audits and investigations.  Supplementing contractors’ duty under existing statutes and regulations to report suspected human trafficking to contracting officials, the Order requires contracting officers that “become aware of” any trafficking-related activity to notify the agency’s inspector general, the official responsible for suspension or debarment actions, and if necessary, law enforcement.  

The implementing regulations also will require, for all US government contracts with work performed overseas exceeding $500,000, that each contractor and subcontractor maintain a compliance plan that includes, among other things, a program to make employees aware of the contractor’s or subcontractor’s anti-trafficking policy and the consequences for violating the policy, mechanisms for reporting violations, a recruitment plan that deters trafficking-related activities, a housing plan in compliance with host country safety standards (if applicable), and methods to prevent subcontractors from engaging in trafficking in persons and trafficking-related activities.  These contractors and subcontractors will be required to certify that the compliance plan is in place.  They must also certify that neither the contractors nor their subcontractors have, to the best of their knowledge, engaged in trafficking-related activities and that, if abuses have been found, they or their subcontractors have taken appropriate actions in response to the abuses.  The plan must be posted at the workplace and on the contractor or subcontractor’s website, and it must be provided upon request to the contracting officer.

The Order also directs the Office of Federal Procurement Policy (OFPP) to consult with federal government management councils to develop consistent internal procedures and controls to improve monitoring of and compliance with trafficking-related statutes and regulations.  The Order further directs OFPP to develop training requirements and methods to track training relating to responsibilities for deterring trafficking in persons.  By September 2013, the government will also begin a process to identify industries with a history of trafficking-related activity or where there is elevated risk of trafficking due to the nature and location of the work performed.  Those industries can expect increased public and government scrutiny.

  • End Trafficking in Government Contracting Act

On January 2, 2013 President Obama signed the National Defense Authorization Act for Fiscal Year 2013 (NDAA) containing Title XVII, entitled Ending Trafficking in Government Contracting.[12]  Title XVII of the Act is similar to provisions of the President’s Executive Order calling for the FAR Council to implement trafficking-in-persons compliance regulations, but also expands on other areas of trafficking enforcement.  For example, the law amends the TVPA[13] by increasing criminal penalties for contractors who engage in severe forms of trafficking or forced labor, and by enlarging the scope of punishable actions.

In addition to prohibiting severe forms of trafficking, the use of forced labor, and the procurement of a commercial sex act during the contract period, the NDAA prohibits contractors, subcontractors, grantees, and subgrantees from engaging in “acts that directly support or advance trafficking in persons.”  Much like the Order, these acts include confiscating or otherwise denying employees access to their identity documents; failing to provide or pay for return transportation for employees from outside the United States to the countries from which they were recruited (unless exempted by the federal contract or the employee is a victim of human trafficking who is seeking services in the country of employment); soliciting potential employees or offering employment through materially false representations about the employment terms and conditions; charging unreasonable recruitment or placement fees, or recruitment fees that are illegal in the country from which the employees are recruited; and, when housing is arranged or provided, failing to meet the housing and safety standards of the host country.

The act also requires agencies to obtain certifications regarding compliance with anti-human-trafficking procedures from all overseas contractors for work performed outside the United States valued at more than $500,000.  These compliance procedures include maintaining a compliance plan designed to prevent, monitor, detect, and remedy human trafficking and human trafficking-related activities.  Contractors also must certify that they and all subcontractors, or any agent of any subcontractors, have not engaged in severe forms of human trafficking, the use of forced labor, or the procurement of commercial sex acts during contract performance.

Finally, like the President’s Order, the act implements reporting mechanisms in cases of allegations of human trafficking by a contractor or subcontractor, or agent of either, that require contracting officials to refer reports of “credible information” that a contractor or subcontractor has engaged in prohibited trafficking activities to their agency inspector general.  The act also outlines remedial actions that the head of the agency must consider in cases of substantiated allegations of human trafficking, up to and including suspension and debarment of the contractor or subcontractor.  And, finally, in addition to the administrative actions outlined in the President’s Order, the act also requires the head of the agency to ensure that substantiated allegations of human trafficking are included in the Federal Awardee Performance and Integrity Information System (FAPIIS).

  1. US Department of Labor's “Reducing Child Labor and Forced Labor” Toolkit

As part of the heightened attention on trafficking and forced labor in business operations, the US Department of Labor Bureau of International Labor Affairs (ILAB) released a toolkit in December 2012 to help businesses identify and root out forced and child labor in their operations and supply chains.  The toolkit, which can be found on ILAB's website,[14] was created by ILAB in collaboration with the National Academy of Sciences (NAS).  The toolkit sets forth the elements of an anti-trafficking compliance plan, including engaging stakeholders, conducting risk assessments, developing and implementing a code of conduct, training employees, monitoring compliance, remediating violations of the code of conduct, conducting independent audits and reviews of the compliance program’s effectiveness, and reporting publicly on the compliance system.  Based on a survey of industries, ILAB also compiled examples of best practices in anti-trafficking compliance.[15]  

  1. Legislation Requiring Transparency in Efforts to Eliminate Trafficking in Supply Chains

States also have stepped up anti-trafficking initiatives and laws directed at businesses.  The California Transparency in Supply Chains Act, which went into effect on January 1, 2012, requires retail sellers or manufacturers that do business in California and have annual worldwide revenues exceeding $100 million to disclose on their websites the extent to which they address and attempt to eliminate the use of forced labor in their supply chains.  The state attorney general is authorized under the act to bring injunctive relief actions against companies that do not comply.  Under the act, the Franchise Tax Board of California was required for the first time on November 30, 2012 to send to California's attorney general a list of companies required to disclose on their websites their efforts to eliminate the use of forced labor in their supply chains.  This list will be required again on November 30, 2013.  This year may also bring more clarity on the disclosure requirements based on information provided to the state attorney general, and perhaps the introduction of other state legislation modeled on this act.

A federal bill, the Business Transparency on Trafficking and Slavery Act (H.R. 2759), which is modeled on and in some ways broader than the California legislation, was introduced in 2011 but languished in Committee.  We will monitor developments in this area.

  1. Integrating Anti-Trafficking into Ethics and Compliance Programs

These recent anti-trafficking developments emphasize the need for all companies, even those that do not contract with the federal government, to establish compliance systems that ensure their businesses and supply chains are free of forced labor and trafficking.  While companies should tailor anti-trafficking efforts to address their particular risk profile, we provide a broad overview below of the elements any such program might include.  

  1. Risk Assessments

Risk assessments are an important step in understanding the trafficking-related risks that exist in a company’s industry, particular operations, and supply chain.  While human trafficking and forced labor can occur in any industry, some industries present a higher risk than others.  It is important to engage a range of stakeholders to gain an accurate understanding of the risks.[16]  Companies then can tailor other compliance measures to address the specific risks identified.

Even where a company does not face high risks of trafficking in its own operations, the goods or services it relies on may originate from vendors, suppliers, or recruiting agents who use and/or procure trafficked, forced, or child labor.  Risk assessments should consider these supply chain-related risks.  A useful tool in conducting a risk assessment is the List of Goods Produced by Child Labor or Forced Labor, which is compiled by the US Department of Labor's Bureau of International Labor Affairs.  In its most recent 2012 version, the List included 134 goods from 74 countries.[17]  Companies that determine as part of their risk assessment that they source any of the listed items from the corresponding countries should be particularly vigilant in examining those suppliers for the use of forced or child labor.  Similarly, service providers that rely on overseas, migrant, or low-wage workers, particularly from countries experiencing political instability, natural disaster, or other hardships, may be more susceptible to labor trafficking and should receive closer scrutiny.

A risk assessment should also consider a company’s hiring practices, including the use of labor recruiters.  If a company finds in its operations or supply chains any of the trafficking-related activities prohibited by the Executive Order and the FY2013 NDAA, such as the charging of unreasonable or illegal recruitment fees, the confiscation of employees’ identity documents, or fraudulent or misleading recruitment practices, this should raise a red flag.  Violations uncovered by risk assessments should be immediately remedied, and, if required, reported to appropriate government officials.

  1. Codes of Conduct, Policies and Procedures

Corporate codes of conduct should clearly prohibit trafficking and forced and child labor.  In its toolkit, the US Department of Labor recommends that a strong code of conduct should address the International Labor Organization’s core labor standards, which include employment discrimination, and freedom of association and collective bargaining.[18]  A code, or more detailed set of policies and procedures, should also address wages, hours, and occupational safety, and prohibit trafficking-related activities such as those outlined in the FY2013 NDAA (discussed above), even if a company is not a federal government contractor.  The policies and procedures may also define vetting requirements for vendors relating to trafficking, corruption, and other human rights-related concerns.  The Dhaka Principles for Migration with Dignity, which are designed to protect the basic human rights of migrant workers while they are recruited for, employed, and returning from work abroad, [19] further recommend transparency and clarity in all contracts with migrant workers. 

  1. Supply Chain Due Diligence and Safeguards

The 2012 Trafficking in Persons Report issued by the US Department of State’s Office of Trafficking in Persons emphasizes that “companies must be responsible for the full length of their extended supply chains.”[20]  As a result, companies should endeavor to conduct due diligence on third parties presenting potential risks throughout all levels of their supply chains.  Where the number of entities in the supply chain is large, companies can follow the guidance in the United Nations Guiding Principles on Business and Human Rights, which suggests that companies should prioritize for attention those suppliers with a profile presenting the most significant risks of adverse human rights impacts, whether based on the particular operations or operating context, the goods or services involved, or other factors.[21]  Companies may achieve efficiencies by building anti-trafficking and other human rights-related vetting of third parties into their regular anticorruption due diligence and international regulatory screening procedures.

Based on the results of a risk assessment, companies may identify certain categories of providers that require heightened pre-contract due diligence to identify any past issues, as well as post-contract monitoring.  For example, in service contracting, after conducting a country risk assessment and finding a high risk of trafficking-related activities by recruiting agents, a company may decide to hire a full-time, in-country recruiting agent or establish a permanent relationship with a single recruiter that would not use sub-agents without appropriate screening by the company.  By establishing a long-term relationship, the company can monitor and dictate practices used by its recruiters to obtain host nation and third-country national labor.

Companies should also make their anti-trafficking policies known to suppliers and recruiting agents.  Potential contractual safeguards include a prohibition on the use of trafficked, forced, or child labor; cooperation requirements; audit rights; and rights to suspend performance, withhold payments, and terminate the contract if violations are uncovered.  Companies may also wish to consider requiring periodic certifications of compliance from suppliers in high-risk areas.  Government contractors should flow down the trafficking-related requirements of their contracts with the federal government to both subcontractors and independent recruiting agents obtained to recruit service workers.

  1. Training

It is important to train relevant company employees, vendors, suppliers, and others on the code of conduct, prohibited conduct, recognizing signs of trafficking and forced labor, and available reporting mechanisms.  The Department of Labor toolkit recommends training suppliers to the extent possible beyond the first tier.  Vendors or first-tier suppliers can also be required through contractual provisions to provide this training to other relevant links in their supply chains.  With respect to government contracts, the President’s Executive Order on human trafficking and the Ending Trafficking in Government Contracting provisions of the FY2013 NDAA direct relevant executive agencies to develop human trafficking training and processes to track training for all federal employees, and, in particular, the federal acquisition workforce.  However, contractors should also consider training as a component of a prudent compliance plan to prevent human trafficking, which will be a requirement for certain contractors performing contracts overseas under regulations implementing the Executive Order and the FY2013 NDAA.

  1. Reporting Mechanisms

Companies should have mechanisms in place that permit employees and others to report violations of the code of conduct or other human rights concerns safely and without retribution.  With respect to government contracts, contractors are required by the FAR to report suspected trafficking to contracting officers, [22] who in turn will be required to notify the agency’s inspector general, the agency official responsible for suspension or debarment actions, and if appropriate, law enforcement.  In particular, if the contracting officer, inspector general, or the head of the agency finds violations that would justify termination under section 106(g) of the TVPA, 22 U.S.C. §7104, the government may pursue suspension and debarment action against the contractor or subcontractor.[23]

  1. Monitoring and Audits

Companies should monitor vendors and suppliers throughout the relationship for trafficking-related activities, and follow up on any red flags identified.  For providers of goods and services that are more susceptible to trafficking and forced labor, periodic audits are also appropriate.  The Department of Labor notes that companies with dispersed or vast supply chains usually audit them on a random and statistically representative sample basis.[24]  Under the Executive Order, companies that contract and subcontract with the US government will be required to agree in their contracts to fully cooperate with enforcement agencies to conduct audits and investigations on anti-trafficking compliance.

  1. Remediation

Where misconduct is uncovered through an internal investigation, third party audit, or otherwise, the violation should be immediately remedied.  Remedial action should both correct the violation and put preventative measures in place to ensure that it does not recur.  The Luxor Implementation Guidelines to the Athens Ethical Principles,[25] a set of principles against human trafficking developed by business leaders, government officials, the United Nations and NGO communities, recommend encouraging suppliers to comply with the code of conduct by providing technical assistance and positive incentives such as purchase guarantees.  Likewise, the guidelines recommend negative incentives for violating the code of conduct, such as contract suspension or termination for repeat violations.

  1. Transparency

Companies can expect that future anti-trafficking initiatives will follow the trend of the California Transparency in Supply Chains Act in calling for companies to disclose their efforts to ensure that their supply chains are free of forced labor and other trafficking-related activities.  Even without mandatory reporting that applies to federal government contractors, the US Department of Labor toolkit, Luxor Implementation Guidelines, and the UN Guiding Principles on Business and Human Rights all recommend that companies voluntarily report on their efforts to implement their codes of conduct.  The UN Guiding Principles further recommend that governments “[e]ncourage, and where appropriate require business enterprises to communicate how they address their human rights impacts.”[26]

Investors, governments, and the global community are increasingly concerned about human trafficking and forced labor in business operations.  Businesses can stay ahead of the curve and exercise leadership on human rights by implementing trafficking-related compliance measures and reporting on their efforts in this area.