Key Points
- In light of the vigorous enforcement of the Uyghur Forced Labor Prevention Act, boards in their oversight role should ensure that their companies conduct heightened diligence on their supply chains, including upstream suppliers.
- Industrial products and components increasingly are targets — not just items traditionally seen as high risk from a forced labor standpoint, such as textiles and solar panels — and the vast majority of shipments detained have countries of origin other than China.
- The U.S. government pays close attention to NGO and other reports on products that may contain components made with forced labor in China’s Xinjiang region.
- The U.K., Germany and Canada have implemented their own forced labor prevention laws, and the EU is considering one.
The U.S. law targeting forced labor and other alleged human rights abuses in the Xinjiang region of China has upended supply chains worldwide since it took effect in June 2022. In the first year and a half that this law has been in force, U.S. Customs and Border Protection (CBP) denied entry to 2,500 shipments worth a combined $2.2 billion. Moreover, the vast majority of the shipments came to the U.S. not from China but from other countries, and were blocked because components were traced back to Xinjiang.
This has implications for boards:
- As enforcement of the U.S. law is enhanced and other jurisdictions enact similar import controls, as part of their risk oversight role, boards should satisfy themselves that their companies have mechanisms and controls in place to provide reasonable assurance of compliance with these laws.
- Boards need to be aware that, if a company shows up in reports that note potential problems or violations, it will need a strategy to get ahead of the story to mitigate reputational risk and prepare for any government action.
- Such reports also can trigger shareholder demands to take action against management or board members, or may lead to books and records demands to find evidence of non-compliance with these laws.
