Under the Trade Facilitation and Trade Enforcement Act 2015 (TFTEA), US Customs and Border Protection (CBP) has taken an increasingly enforcement-minded approach to prevent and penalise the import of goods produced using forced labour into the United States.
On 13 August 2020 CBP announced that it had collected $575,000 in penalties resulting from a civil enforcement action against importer Pure Circle USA for imports made with forced labour. This appears to be the first penalty-related collection that CBP has secured for forced labour under the TFTEA. In a 14 August 2020 press release, Pure Circle characterised the money paid as a settlement with CBP to resolve the action, albeit without admission of liability. The company further noted that this payment was less than 7% of what CBP sought to collect.
CBP has taken a number of steps to detain merchandise that violates the ban on forced labour (for further details please see "New strategy to combat forced labour in US imports announced"). The action against Pure Circle indicates that CBP is following through with its mandate to prevent goods produced using forced labour from entering the stream of commerce and penalise importers when such goods do enter.
What do importers need to know?
The penalties in this case were imposed pursuant to 19 US Code (USC) 1307 and likely 19 USC 1595a. Under 19 USC 1595a, CBP may issue civil penalties against importers for entering, introducing or attempting to enter or introduce merchandise that is prohibited or restricted. 19 USC 1307 prohibits the import of merchandise that was "mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions" into US commerce. Stated simply, goods produced in whole or in part with forced labour are prohibited from entering the United States. Shipments suspected of being produced with forced labour will be detained by CBP and excluded if CBP determines that forced labour was used in the production of the goods.
Merchandise is subject to exclusion through withhold release orders (WROs) enforced by CBP and seizure and may lead to criminal investigation of the importers. Since September 2019, CBP has issued 12 WROs to prevent merchandise made with forced labour from entering the United States, including four WROs on products from China. These WROs range across industries from consumer goods such as seafood, hair products and disposable gloves to commodities such as tobacco, gold and rough-cut diamonds.
However, as the Pure Circle case shows, CBP will also investigate and take action against merchandise that has already entered the United States and used forced labour during production. In addition, CBP is increasingly using requests for information and its audit programme to leverage for compliance. This also demonstrates that the onus is now on companies to exercise reasonable care, as discussed in CBP's Informed Compliance Publication (ICP), and establish comprehensive controls to continuously monitor their supply chains and avoid importing goods that were made with forced labour into the United States.
How and where can companies mitigate risk?
Because of the numerous challenges facing importers and their supply chains during the COVID-19 pandemic, enhanced due diligence is essential to mitigate forced labour-related risk. There are several steps that companies can take to better equip themselves to minimise the risk of penalties arising under 19 USC Section 1307, 19 USC Section 1595a and 19 Code of Federal Regulations Sections 12.42 to 12.44, including:
- evaluating and responding to the 12 questions listed in CBP's forced labour ICP; and
- understanding the red flags that indicate forced labour.
The Department of Homeland Security (DHS) has provided additional guidance on due diligence steps to take in regard to use of North Korean labour in the supply chain on its website. The answer to Question 8 in particular provides steps that DHS agencies will likely review when reviewing imports or importers for forced labour issues. These steps include:
- a high-level statement of policy demonstrating the company's commitment to respecting human and labour rights;
- a rigorous continuous risk assessment of actual and potential human rights and labour impacts or risks of company activities and relationships, which is undertaken in consultation with stakeholders, including governments, local business partners and members of civil society, such as local communities, workers, trade unions, vulnerable groups and non-governmental organisations;
- integrating these commitments and assessments into internal control and oversight systems of company operations and supply chains; and
- tracking and reporting on areas of risk.
The guidance suggests that this risk analysis should include both internal supply chains and third-party suppliers.
Due to the global nature of many supply chains, it is important that companies take a broad view of best practices. For the import of goods into the United States, this necessarily involves adherence to CBP's guidance on forced labour and compliance with US statutes and regulations. However, compliance also involves examining upstream suppliers and middle market manufacturers wherever they may be located. Further, the United States is not unique in its opposition to forced labour; significant markets around the world have also imposed restraints and penalties, including Australia and the United Kingdom. Others – such as Canada, Finland and Germany – have pending regulations. Accordingly, importers should work closely with experts to develop a comprehensive global risk-mitigation plan tailored to their operational structure, value chains and strategic objectives.
While companies must mitigate risk to secure their bottom lines, it is also vital that importers distinguish themselves from competitors by building competitive advantages and securing stakeholder buy-in. Effective management and continuity of operations are taken for granted and more companies increasingly face pressure to demonstrate socially responsible leadership. In an era of uncertainty, visibly promoting and adhering to corporate social responsibility (CSR) principles is one way that companies can differentiate themselves from the crowd. Principle 4 of "The Ten Principles of the United Nations Global Compact" provides a respectable starting place and identifies "the elimination of all forms of forced and compulsory labour". Additional CRS principles that can assist companies to reduce risk while building a leading company culture include:
- establishing CSR as the foundation of business operations;
- improving operational guidelines through regular internal review and reporting; and
- implementing training and controls across value chains.
Under the TFTEA, CBP has taken an increasingly enforcement-minded approach to prevent and penalise the import of goods produced using forced labour into the United States. In the face of these compliance-related risks, companies must develop strategic plans that minimise risk while developing competitive advantages.
