Developing an Anti-Human Trafficking Compliance Program Michael Littenberg, Ropes & Gray May 2, 2017
About the Presenter: Michael Littenberg Michael Littenberg is a partner in the securities & public companies practice group at Ropes & Gray. As part of his practice, for more than 25 years, Michael has been active in advising leading public and private companies on supply chain compliance and corporate social responsibility matters, including relating to, among other areas, anti-human trafficking and conflict minerals and other commodities, and he is widely viewed as the leading practitioner in this emerging area. Michael R. Littenberg Partner T +1 212 596 9160 F +1 646 728 2554 Michael.Littenberg@ropesgray.com Michael advises a significant number of companies on compliance with the US Conflict Minerals Rule, the pending EU Conflict Minerals regulation, the California Transparency in Supply Chains Act, the UK Modern Slavery Act, the FAR antihuman trafficking rule, REACH, RoHS, OFAC and anti-boycott and other supply chain-related regulations. Michael advises clients on, among other things, disclosure and compliance with legal requirements, the construction and implementation of compliance programs, mitigating customer, litigation, NGO and socially responsible investor risk, and their in interactions with these constituencies.
Today s Topics Selected Regulations The UK Modern Slavery Act The California Transparency in Supply Chains Act The FAR Anti-Human Trafficking Rule Pending and Proposed Regulations NGO Expectations and Stakeholder Engagement Compliance Tips and Recommendations
What is Human Trafficking and Modern Slavery? Includes slavery, servitude, forced or compulsory labor and human trafficking Slavery and servitude behavior that deprives the victim of their freedom; the obligation to provide services by use of coercion; obligation to live on another s property with the impossibility of changing his/her condition Forced or compulsory labor coercion, whether direct threats of violence or more subtle forms of compulsion; key elements are that work or service is exacted under threat of penalty and the person has not offered him/herself voluntarily Human trafficking arranging or facilitating travel of another person with a view to exploitation Often co-exists with other poor labor practices
Selected Corporate Anti-Human Trafficking Legislation Adopted Pending/Proposed Voluntary California Transparency in Supply Chains Act US Federal Acquisition Regulation Anti-Human Trafficking Rule US Business Supply Chain Transparency on Trafficking and Slavery Act Netherlands Child Labor Due Diligence Law UN Guiding Principles on Business and Human Rights OECD Guidelines for Multinational Enterprises UK Modern Slavery Act Australian Parliament inquiry concerning the adoption of national modern slavery legislation (initial stages) Various Industry Codes of Conduct, Third Party Standards and NGO Recommendations US Trade Facilitation and Trade Enforcement Act French Corporate Duty of Vigilance Law Swiss human rights due diligence referendum Welsh Code of Practice for Ethical Employment in Supply Chains
UK Modern Slavery Act Overview Commercial organisations must prepare a slavery and human trafficking statement each year Applies to entities that supply goods or services and have an annual turnover of at least 36MM Must indicate steps taken during the applicable year to ensure human trafficking is not occurring in the supply chain or business Effective for fiscal years ending on or after 3/31/16 Recommended disclosure topics Organizational structure, business model and supply chain relationships Applicable policies Due diligence and auditing process Human trafficking risks and steps taken to assess and mitigate risk Compliance effectiveness and KPIs Training
Commercial Organisations Applies to commercial organisations A corporation or partnership wherever incorporated or formed that carries on a business or part of a business in any part of the UK Includes trades and professions No bright-line test for determining whether a commercial organisation based outside of the UK is carrying on a business or part of a business in any part of the UK UK Home Office: Organisations should apply a common sense approach. Is there a demonstrable business presence in the UK?
Turnover Threshold Subject commercial organisations must have an annual turnover of at least 36MM Turnover includes the turnover of the entity doing business in the UK and its subsidiary undertakings, wherever doing business Includes subsidiaries that carry on business entirely outside of the UK Does not include up-the-chain or sister entities that do not do business in the UK Franchisee turnover is excluded
MSA Statements A Closer Look The Statement must indicate the steps the commercial organisation has taken during the applicable financial year to ensure slavery and human trafficking is not taking place in any of its supply chains or any part of its own business Alternatively, if the organisation has not taken any such steps, it is required to indicate that The MSA is a disclosure-only rule No requirement to adopt a human trafficking policy, conduct due diligence or put in place a compliance program But for most companies we do not do anything not an acceptable response
Recommended Disclosure Topics There are no mandatory disclosure topics; recommended disclosure topics include: Organizational Structure and Supply Chains Organizational Policies Assessing and Managing Risk Key Performance Indicators Training The sector(s) the business operates in and whether any of its work is seasonal The organizational structure and group relationships The countries it sources its goods or services from including high risk countries The make-up and complexity of its supply chains Process for policy development Supplier code of conduct Child labor, migrant labor, procurement and whistleblowing policies Actions taken to understand the organization s operating context/risk Details of risk management processes Details of impact assessments undertaken Action plans to address risk/actual instances of modern slavery Evidence of stakeholder engagement Information on existing KPIs Explanation as to whether existing KPIs make the organization more vulnerable to modern slavery risk Details of additional KPIs the organization has introduced to measure performance of antislavery actions taken Formal or informal training offered to employees or suppliers on identifying and taking corrective action against modern slavery Relationships with suppliers and others, including any trade unions
Statement Timing and Logistics Statements must be prepared annually No fixed deadline, but as soon as reasonably practicable after fiscal year end and encouraged within six months Website publication required Prominent, clearly marked link on the homepage If more than one website, place on the most appropriate website If more than one appropriate website, place or link to on each If no website, the Statement must be furnished within 30 days after request Combined Statements are permitted The Statement must be approved by the Board and signed by a director
MSA FAQs Which of our entities come within the MSA? Should we prepare a combined MSA/CTSCA Statement? Should we address all of the suggested disclosure topics? How long should the Statement be/how much detail should it include? Can the Statement be approved by delegated authority? Will UK regulators be reviewing Statements? Does our Statement create litigation risk? Do we need to modify or enhance our existing compliance efforts? How are we likely to compare against other companies? What are other companies really doing? Will NGOs be reviewing and ranking disclosures?
California Transparency in Supply Chains Act Requires large retailers and manufacturers doing business in California (US$100MM) to disclose on their websites their efforts to eradicate slavery and human trafficking from their direct supply chains of goods offered for sale Requires disclosure regarding Verification of product supply chains Supplier audits Supplier certifications Internal accountability Training
MSA/CTSCA Comparison MSA CTSCA Subject Companies Supplier of goods or services, including a trade or profession Manufacturer or retailer Annual Turnover Threshold 36 million $100 million Jurisdictional Nexus Common sense approach California Revenue and Taxation Code Supply Chain Any of the subject company s supply chains, and any part of its own business Statement Content Suggested topics Required topics Publication Website, with a prominent homepage link, or upon written request Signature/Board Approval Required None Direct supply chain for tangible goods offered for sale Website, with a conspicuous and easily understood homepage link, or upon written request Frequency Annual Not specified; on an as-needed basis
FAR Anti-Human Trafficking Rule Overview Applicable to U.S. federal contractors, sub-contractors and their employees and agents Prohibits specified human trafficking conduct in connection with U.S. federal contracts No de minimis exception Effective March 2, 2015 Generally requires - Compliance plan and - Certifications if - Contract/subcontract involves supplies acquired or services to be performed outside of the U.S. with an estimated value >US$500K
Prohibited Conduct Engaging in severe forms of sex trafficking during the contract period Procuring commercial sex acts Using forced labor in contract performance Destroying, denying access, etc. by an employee to identity or immigration documents Misleading, fraudulent or illegal recruitment practices Charging recruitment fees to employees Under certain circumstances, failing to provide return transportation at end of employment Providing housing that does not meet host country standards If required by law, failing to provide an employment contract or other required work document
Compliance Plan Requirements Flexibility in plan design But, must include specified elements: An awareness program A process for employee reporting, including a hotline A recruitment and wage plan If housing is provided, a housing plan Procedures to: Prevent agents and subcontractors at any tier/dollar value from engaging in human trafficking Monitor, detect and terminate agents, subcontractors and their employees that engage in prohibited activities
Certification Requirements Applies if a compliance plan is required Certification that: The contractor has implemented a compliance plan and procedures to prevent, and to monitor, detect and terminate a subcontractor engaging in, prohibited activities After conducting due diligence, either: To the best of the contractor s knowledge and belief, none of the contractor, its subcontractors or their respective agents are engaged in any prohibited activities or If abuses relating to prohibited activities have been found, the contractor or subcontractor has taken the appropriate actions The contractor also is required to obtain certifications from relevant subcontractors
Violations; Remedies If a violation, requires notice to the contracting officer and agency Inspector General, the agency debarring and suspending official and, if appropriate, law enforcement with jurisdiction Remedies: Removal of employee from the contract or termination of a subcontractor Suspension of contract payments pending remediation Loss of award fees for the non-compliance period Declining to exercise contract options Termination for default or cause Suspension or debarment Potential criminal liability and liability under the False Claims Act Reputational harm and targeting by NGOs and SRIs
Emerging Compliance Requirements France The Netherlands Australia Switzerland
NGO Expectations An expansive view of modern slavery Robust policies and procedures Good faith risk assessment Due diligence/supply chain engagement Meaningful efforts to mitigate risk Consultation with external stakeholders Disclosure An ongoing process/effort A significant number of NGOs are focused on human trafficking across a broad range of products, commodities and geographies NGO, SRI and other stakeholder engagement is becoming increasingly sophisticated and varied
Regulatory Action and Litigation In 2015, the California Dept. of Justice undertook a CTSCA compliance sweep There are several lawsuits pending relating to slavery and child labor in the supply chain These suits cite various theories for liability and have been brought in several jurisdictions Lawsuits alleging violations of the CTSCA have been threatened by pension funds NGOs have published guides on how to bring claims The MSA is being championed by PM May, which may result in vigorous enforcement There also is an Independent Anti-Slavery Commissioner
Hallmarks of an Effective AHT Compliance Program Strong Company Management Systems Defined management structure with senior oversight; policies; contractual terms and conditions; communication and training; grievance mechanism Identification and Assessment of Risk Vendor and product scoping/risk weighting; vendor outreach; data validation; vendor compliance assessment; supply chain mapping Risk Management Internal reporting; corrective action plan; vendor follow-up; capacity building Independent Third-party Audits/ Assessments Participation in multi-stakeholder initiatives Public Reporting
Getting Started Practical AHT Compliance Tips Assess applicability Are statutory thresholds met? Take a thoughtful, measured approach Assess human trafficking risk Determine appropriate compliance measures in light of perceived risks, compliance obligations and commercial considerations Assess adequacy of existing compliance policies, plans and procedures and related training; modify and enhance as appropriate Harmonize disclosure and compliance procedures Take MSA, CTSCA and other disclosures into account Leverage complementary supply chain compliance initiatives Benchmark against peers, NGO guidance and compliance frameworks
Assessing Modern Slavery Risk Selected Factors Nature of products and services Raw materials inputs and origin Location of manufacture/assembly Vendor and supply chain workforce Use of subcontractors Use of temporary or seasonal labor or home-based workers Use of labor recruiters by vendors and supply chain Transience of supply chain Transportation of products Turnaround times/supply chain pressures Depth of supply chain Salience vs. materiality Presence/risk of related human rights and labor issues Strength of local laws and institutions
Assessing Modern Slavery Risk Resources Vendor questionnaires and audits US Department of Labor lists List of Products Produced by Forced or Indentured Child Labor List of Goods Produced by Child Labor or Forced Labor US State Department country risk ratings Media reports NGO publications Industry associations Third-party consultants Local stakeholders
Adopting A Policy Practical Considerations Audience: Internal or external or both? Content Compliance with laws or beyond? E.g., the UN Global Compact, Universal Declaration of Human Rights, International Bill of Human Rights, UN Guiding Principles, OECD Guidelines for Multinational Enterprises and/or ILO core labor standards Statement of expectations or requirements? Level of granularity? Include a grievance mechanism? Commit to engage with stakeholders, remedy adverse impacts and respect the rights of human rights defenders? Format: Stand-alone or fold into existing documentation? Dissemination: Distribute and/or publish? Other Considerations Internal approval requirements Align with other policies and CSR communications Litigation risk Ongoing monitoring
For additional compliance resources: https://www.ropesgray.com/corporate-social-responsibility-and-supply-chain-compliance.aspx