Managing Risk Through Corporate Anti-Modern Slavery Compliance

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By Fabio Leonardi, Counsel
Pillsbury Winthrop Shaw Pittman

Until recently, federal anti-modern slavery law was rarely within the purview of the corporate compliance world.  In very recent years, however, this relatively new body of laws also known as the Trafficking Victims Protection Act (“TVPA”) is becoming increasingly familiar to compliance professionals, plaintiffs lawyers and enforcement agencies.  Why?  Mainly, because it subjects companies –both domestic and foreign– to significant civil and criminal corporate liability if they benefit financially from modern slavery.

Indeed, since its 2008 amendment, the TVPA has created a private right of action for victims of modern slavery against third parties, such as corporations, that benefit from participating in a venture if they knew or “should have known” that such venture engaged in modern slavery.  In other words, from a business perspective, the TVPA imposes civil liability for corporate negligence towards forced labor in the supply chain.

Accordingly, for example, as shown in a recent corporate anti-modern slavery lawsuit filed against several major car manufacturers in California, a company may be exposed to corporate liability if a subcontractor employs forced labor in its supply chain, and the company should have known of such exploitation.  Additionally, as an employee’s knowledge may generally be imputed to its employer, it can be established that a company “should have known” of such form of modern slavery where the company’s employees or agents may have witnessed signs of potential labor exploitation.

Notably, corporate liability under the TVPA is not limited to labor exploitation within the company’s domestic supply chain.  In fact, victims of forced labor may bring anti-modern slavery lawsuits against businesses even where the exploitation occurred overseas.

In addition to imposing corporate civil liability for companies that benefit, even unwittingly, from modern slavery, the TVPA imposes significant criminal liability if corporations benefit financially from modern slavery in “reckless disregard” that their business venture engaged in such exploitation.  Indeed, companies charged with criminal violations of the TVPA may face up to $500,000 in fines or, more importantly, twice the benefit conferred from the violation.  Further, as in most corporate financial crimes, executives and other company employees who cause the corporation to engage in a TVPA criminal violation may also be prosecuted under the statute and, if found guilty, face up to 20 years of imprisonment if their company benefited from forced labor.

As companies can be exposed to significant corporate liability if they negligently fail to identify and stop modern slavery within their supply chain, it is paramount that they implement effective anti-modern slavery compliance programs.  In fact, as previously noted, it may be deemed that a business “should have known” that their supply chain was tainted with labor exploitation if employees witnessed signs of modern slavery and either did not recognize them as such or failed to notify management, thereby allowing their company to benefit from the crime.  A system of anti-modern slavery compliance would effectively address these concerns by establishing internal policies and procedures to identify instances of exploitation promptly and, one might hope, even prevent the crime.

Within the context of corporate acquisitions, a company may also be subject to liability under the TVPA as the corporate “successor” to a third-party entity that previously benefitted from modern slavery.  Accordingly, anti-modern slavery due diligence of target companies and potential partners is necessary to properly assess the potential for TVPA criminal and civil liability risk.

In conclusion, to avoid corporate liability and unintentionally contributing to the plight of modern slavery while mitigating the TVPA’s potentially significant impact on business operations, companies should consider incorporating anti-modern slavery compliance into their own compliance framework.  Doing so is particularly critical for companies with supply chains operating in high-risk industries that might rely on forced labor.

Modern slavery is a multi-billion-dollar criminal industry where traffickers use force, fraud or coercion to control their victims.  Proactively engaging in corporate anti-modern slavery compliance is thus necessary from both corporate social responsibility and risk management perspectives.  Indeed, not only is it an effective way to play a significant role in the fight against exploitation, but it also reduces business risk by mitigating a company’s exposure to potential corporate liability due to civil litigation and criminal prosecution.

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