Thursday, July 30, 2015

Human Trafficking Bill Would Add to Supply Chain Duties

By Mark S. Nelson, J.D.

A bill introduced by Rep. Carolyn Maloney (D-NY) would create new socially-themed disclosure obligations under the federal securities laws for many companies. The Business Supply Chain Transparency on Trafficking and Slavery Act of 2015 calls on firms to disclose if their supply chains involve labor that may be the product of human rights abuses. The bill would add to the SEC’s growing specialized disclosure regime first mandated by the Dodd-Frank Act.

“This legislation simply requires businesses to publicly disclose what actions they have voluntarily undertaken to remove labor abuses from their supply chains,” said Rep. Maloney. “It is a good first step we can take to improve reporting and transparency so that we can enforce existing laws against labor abuses and allow consumers to make more informed decisions.”

The bill would amend the Exchange Act to require businesses with more than $100 million in global gross receipts to report annually to the SEC about their policies to prevent slavery and human trafficking from entering into their supply chains. According to the bill’s authors, it will enhance consumer choice, increase companies’ accountability for supply chain practices, and foster competition to adopt better practices for handling human rights issues.

A summary of the bill also noted that disclosures would have to be “prominently posted” on both the SEC’s and companies’ websites. The posting of these types of disclosures on company websites is already subject to an ongoing legal challenge over whether similar requirements for conflict minerals supply chains violate the First Amendment.

“Some companies may participate knowingly in human trafficking to pad the bottom line; others are willfully ignorant of where and how their inexpensive products are made; and still others simply do not know,” said co-sponsor Rep. Chris Smith (R-NJ). The representative, who also authored related legislation, said companies cannot ignore serious problems with their supply chains.

The latest version of the House bill was partially inspired by a recent State Department report urging businesses to do more regarding human rights. Senator Richard Blumenthal (D-Conn) said he will introduce a related bill.

Representative Maloney initially offered her bill in 2011 (H.R. 2759). That version would have added Exchange Act Section 13(r) to provide for companies’ disclosures about human trafficking. If enacted, the human trafficking provision will occupy a different part of Section 13 because subsection (r) is currently occupied by a provision for disclosures about firms’ business ties to Iran.

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