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What Companies Need to Know About the U.S. Business Supply Chain Transparency Act

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In response to persistent business-related human rights concerns, there has been a clear and growing legislative trend in the United States towards greater supply chain transparency, traceability, and disclosure requirements. The Dodd Frank Act, Section 1502 on conflict minerals, and the California Transparency in Supply Chains Act of 2010 (SB 657) on human trafficking, are among the most notable legislative initiatives in this area.

In alignment with the U.N. Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Supply Chains, U.S. policymakers have enacted policies and legislation that raise expectations for the private sector to monitor and report on their efforts mitigating human rights abuses.

The latest such proposed federal legislation is H.R. 4842, the Business Supply Chain Transparency on Trafficking and Slavery Act of 2014. Introduced by U.S. Representative Carolyn Maloney (D-NY) as an amendment to Section 13 of the Securities and Exchange Act of 1934, H.R. 4842 seeks to provide consumers with greater insight into whether the products they purchase are free from child labor, forced labor, slavery, and human trafficking. Like California SB 657, it aims to accomplish this objective through mandatory public disclosures to the Securities and Exchange Commission (SEC) regarding companies’ efforts to assess and address these human rights violations within their supply chains. Companies covered by this act are defined as “covered issuers” (those currently required to file reports with the SEC under Section 13 of the Exchange Act).

Whom does H.R. 4842 Impact Most?
While modeled after SB 657, H.R. 4842 includes some additional clauses in terms of coverage, scope and specific reporting requirements:

  • One of the primary differences between SB 657 and H.R. 4842 is their scope. SB 657 applies to all retail sellers and manufacturers doing business in California and having annual worldwide gross receipts that exceed one hundred million dollars ($100,000,000).
  • H.R. 4842 also uses the $100,000,000 threshold, but has a larger scope. Enacted at the federal level, it would affect a greater number of companies, and encompass any “covered issuer” required to file reports with the SEC.
  • The description of affected companies under the federal bill is not entirely clear, raising questions whether only publicly listed companies are covered, and whether that includes services, in addition to goods (bill references “products and services”).
  • While both SB 657 and H.R. 4842 require companies to publicly disclose their efforts to address forced labor, slavery, human trafficking, and child labor, H.R. 4842 also requires covered issuers to submit an annual report to the SEC to be disclosed on the SEC website.

What Must Companies Disclose Under H.R. 4842?
The proposed disclosures required by H.R. 4842 include:

  • Policy to mitigate the risk of forced labor, slavery, human trafficking, and the worst forms of child labor in the supply chain, as well as efforts to evaluate and address such risk.
  • Conducting audits of suppliers and requiring suppliers to attest that manufactured products and recruitment of labor are carried out in compliance with the forced labor, child labor, and human trafficking laws of their country.
  • Internal accountability standards, supply chain management, and corrective action procedures when standards are not met.
  • Training of employees and management responsible for supply chain management on issues related to forced labor, child labor, and human trafficking.
  • Efforts to ensure responsible labor recruitment practices among suppliers, including audits of labor recruitment agencies.
  • Remedial actions and a victim-support provision where exploitative action has been identified.

What H.R. 4842 Could Mean To You
If enacted into law, H.R. 4842 would require covered companies to disclose a large amount of information on their efforts to responsibly manage their supply chains. For companies that are unprepared, reputational damage associated with a lack of management systems for dealing with the abuses of forced and child labor could be severe.

Leland Butisbauch and Marianna Smirnova are program specialists with UL’s Responsible Sourcing group.

For additional information about solutions to address the risk of human trafficking in supply chains, contact UL’s Responsible Sourcing group by clicking on the “Contact UL” button on the top right corner.