Are you covered by S657 – the new California law requiring retailers and manufacturers to inform the public about their efforts to combat slavery and human trafficking? Whether or not you think the California Legislature has improperly stuck its nose into international affairs, the fact remains the law takes effect on January 1, 2012. Human trafficking and slavery are crimes, and this law seeks to let consumers have information that may influence their buying decisions.

If you have operations within California, there is no wiggle room. You must comply. What about if you do not have physical operations in California? What happens if you only sell your products into California? First, you cannot rely on the usual analysis of whether or not you do business in the state. Wrigley (505 U.S. 214 (1992)) and its sales force analysis do not frame the discussion. The oft-used rule of thumb of not being required to file a tax return in California also will not get you off the hook. The law is written to define doing business in California by reference to Section 25120 of the Revenue and Taxation Code (R+TC). If you are organized or domiciled in California, you have no option but to comply. However, if you think you do not have a presence in California, guess again. This R+TC provision may still encompass your operation. Do you have sales (including by agents and independent contractors) within California that total $500,000 or 25% of your total sales? Do you have real property and tangible personal property worth $50,000 or 25% of your total real property and tangible personal property? Still saying no? Here is the catchall – do you pay compensation (“wages, salaries, commissions and any other form of remuneration paid to employees for personal services”? See R+TC 25120.) of $50,000 or 25% of your total compensation to those residing in California? If you answered yes to any of these questions, you must comply with this law.

So, now that you know you are included, what is next? The requirements are twofold – put information on the home page of your website and have a robust compliance program that meets specific mandates. The information on the home page addresses how your company is combating human trafficking. You are permitted to put a link on your homepage that takes the reader to a different section of your website where those details are located, but the initial link must be on your homepage. Companies that do not have websites must respond to requests for such information within thirty (30) days of receipt.

The required details indentify what your company is doing with its supply chain to “evaluate and address risks of human trafficking and slavery.” To the extent the evaluation was not conducted by a third party, that fact must be stated. Suppliers must be “audited” to evaluate their compliance with company standards to combat human trafficking and slavery. If the audit was not independent and unannounced, that fact must also be disclosed. Direct suppliers must “certify” that “materials incorporated into the product" comply with their local laws. The company must also maintain “internal accountability standards and procedures” for contractor employees who fail to meet company standards and provide training to company employees and management with direct responsibility for supply chain management, especially with respect to “mitigating risks” in the supply chain.

If a company is found to violate these requirements, only the California Attorney General may seek enforcement and then only in the form of an injunction, although other remedies that exist under the law remain available. In other words, you may still get sued by third parties, but on other legal theories. The Franchise Tax Board will yearly provide the Attorney General with a list of retailers and manufacturers who must comply.

For those companies not already members of the Customs-Trade Partnership Against Terrorism (CTPAT) or whose direct suppliers are not currently part of their C-TPAT validated or certified supply chain, now is the time to change that. While C-TPAT and Authorized Economic Operator (AEO) corresponding international program members design their programs to address supply chain security focused on security of goods and data, those provisions in your security plan that deal with qualifying your suppliers and the steps they have in place to vet their employees, including making sure there are no underage employees and that proper working conditions and pay exist and are being followed, will be the basis for certifying compliance with the California Transparency in Supply Chain Act of 2010.

Whether you are directly impacted or supply those who are, now is the time to get started implementing the necessary steps. January 1, 2012, will be here shortly.

Automated Commercial Environment (ACE) Account Becomes A Must

With the elimination of the courtesy notices of liquidation (CBP Form 4333-A) as proposed by Customs taking effect on September 30, 2011, importers are going to be forced to have ACE portal accounts in order to learn when entries are liquidated. Customs will store data in ACE about entries filed in the current fiscal year and go back historically four (4) years and no further due to storage size limitations. Older data can be obtained through an Automated Broker Interface (ABI) query or via the ITRAC or Importer Trade Activity reports, which Customs will provide.

While the courtesy notices of liquidation are not the official or legal notice issued by Customs that a given entry has liquidated, they are relied on by importers to track their record with Customs and identify anomalies. The notice required by statute is the bulletin notice printed and posted at each Customhouse (see 19 C.F.R. 159.9). However, that practice may also come to an end. Customs at the Port of Los Angeles/Long Beach is going to run a test from October 5, 2011, through December 2, 2011, wherein it will save the official liquidation data to a stand-alone computer at the Customhouse. Access to that computer and providing the requested printouts will be provided free of charge, but how much longer will it be before Customs proposes to change the law and eliminate these bulletin notices altogether?

The biggest concern right now is the inconsistent data currently available. The liquidation data in ACE does not always match the data in the Automated Commercial System (ACS). Which one is official? Which one is correct? ACE currently does not contain a history about an entry, so if it was scheduled to liquidate and then suspended, that earlier scheduled liquidation is not noted, only the suspension, but information about both is critical when protesting and evaluating reasonable care and overall compliance. What is Customs doing to upgrade the quality and reliability of the liquidation data it is providing in ACE? Until that question is answered, telling importers to rely on ACE is equivalent to fool’s gold! Looks nice, but there is no substance underneath.