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CBP Gets Tough on Forced Labor: Turning Supply Chain Risks Into Advantages

Under the TFTEA, CBP has taken an increasingly enforcement-minded posture to prevent and penalize the importation of goods produced using forced labor into the United States.

On August 13, 2020, CBP announced that it had collected $575,000 in penalties resulting from a civil enforcement action against importer Pure Circle U.S.A. for imports made with forced labor. This appears to be the first penalty-related collection that CBP has secured for forced labor under the Trade Facilitation and Enforcement Act of 2015 (TFTEA). In an August 14, 2020 press release, Pure Circle characterized 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.

As previously reported, CBP has taken a number of steps to detain merchandise that violates the ban on forced labor. The action against Pure Circle U.S.A. indicates that CBP is following through with its mandate to prevent goods produced using forced labor from entering the stream of commerce, and penalize importers when such goods do enter.

What Do Importers Need to Know?

The penalties in this case were imposed pursuant to 19 U.S.C. 1307 and likely 19 U.S.C. 1595a. Under 19 U.S.C. 1595a, CBP may issue civil penalties against importers for entering, introducing, or attempting to enter or introduce merchandise that is prohibited or restricted. 19 U.S.C. 1307 prohibits imported 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 the commerce of the United States. Stated simply, goods produced in whole or in part with forced labor are prohibited from entering the United States. Shipments suspected of being produced with forced labor will be detained by CBP and excluded if CBP determines that forced labor was used in the production of the goods.

Merchandise is subject to exclusion through withhold release orders (WROs) enforced by CBP and/or seizure, and may lead to criminal investigation of the importer(s). Since September 2019, CBP has issued 12 WROs to prevent merchandise made with forced labor 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 that used forced labor during production. Additionally, CBP is increasingly using Requests for Information and its audit program 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 into the United States that were made with forced labor.

How and Where Can Companies Mitigate Risk?

Because of the numerous challenges facing importers and their supply chains during the time of COVID-19, enhanced due diligence is essential to mitigate forced labor-related risk. There are several steps that a company can take to better equip itself to minimize the risk of penalties arising under 19 U.S.C. § 1307, 19 U.S.C. § 1595a and 19 C.F.R. §§ 12.42-12.44, including:

  • Evaluating and responding to the 12 questions listed in CBP’s forced labor ICP; and
  • Understanding the red flags that indicate forced labor.

DHS has provided additional guidance on due diligence steps to take in regarding to use of North Korean labor 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 labor issues.  These steps include among others:
    • a high-level statement of policy demonstrating the company’s commitment to respect human rights and labor rights;
    • a rigorous continuous risk assessment of actual and potential human rights and labor 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 organizations.;
    • 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 the 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 importation of goods into the United States, this necessarily involves adherence to CBP’s guidance on forced labor and compliance with United States statutes and regulations. But compliance also involves examining upstream suppliers and middle market manufacturers wherever they may be located. Moreover, the United States is not unique in opposition to forced labor, and significant markets around the world have also imposed restraints and penalties including Australia and Great Britain. Others such as Canada, Finland, and Germany, have pending regulations as well. Accordingly, importers should work closely with experts to develop a comprehensive global risk-mitigation plan tailored to the company’s operational structure, value chains and strategic objectives.

An Unexpected Advantage

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. “The Ten Principles of the United Nations Global Compact” Principle 4 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 a CSR as the foundation of business operations, improving operational guidelines through regular internal review and reporting, implementing training and controls across value chains.

What Comes Next?

Under the TFTEA, CBP has taken an increasingly enforcement-minded posture to prevent and penalize the importation of goods produced using forced labor into the United States. In the face of these compliance-related risks, companies must develop strategic plans that minimize risk while developing competitive advantages.

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