By Suzanne Cosgrove
Attorneys General of 16 states have written SEC Chair Gary Gensler to indicate their reservations about a potential initial public offering by China-backed online fashion and home-goods retailer SHEIN later this year.
As a condition of being listed on a U.S.-based securities exchange, “we urge you to require that any foreign-owned company certify via a truly independent process that it is compliant with Section 307 of the Tariff Act of 1930, which prohibits the import of any product manufactured wholly or in part by forced labor,” said Austin Knudsen, Attorney General of Montana, and the letter’s co-signers.
“We further request that you notify the national securities exchanges registered under Section 6 of the Securities Exchange Act of this requirement,” they said.
Warns against self-certification. The letter noted SHEIN has indicated it plans to conduct a self-financed and -managed certification process for its anticipated IPO. “An IPO of this magnitude—involving a foreign-owned company that is facing credible concerns about its core business practices—cannot move forward on self-certification alone,” the AGs said.
Currently based in Singapore, SHEIN was founded in Nanjing, China, in 2008 and continues to rely on a supply chain and manufacturing network in China. Its network of suppliers allows it to quickly create or exploit trends, “often blurring the lines of intellectual property and copyright,” the AGs said, while at the same time handing off responsibility to its manufacturing partners.
Despite growing regulatory concerns, SHEIN has become the world’s largest fashion retailer, with an estimated value of $64 billion. The company’s mobile app is the fourth most downloaded app in the U.S., and SHEIN is reportedly one of TikTok’s largest advertisers.
Fashion’s dark side. “While the advertising puts a bright face on the company, there is a dark side to its rapid growth,” the letter states. “Various government, watchdog, and media reports have alleged that its rise has been “made possible by forced labor, human rights violations, stealing other designers' work and the peddling of clothing made with potentially hazardous materials.”
SHEIN has been “credibly accused of exploiting forced labor and violating the Uyghur Forced Labor Prevention Act, Public Law No. 117-78.3,” the letter continues, and the U.S. House of Representatives Select Committee on the Chinese Communist Party is currently investigating the business practices of SHEIN and other fashion companies for UFLPA violations.
The House Committee’s interim findings discovered that because most products shipped from SHEIN to American consumers fall under a de minimis exception, which allows importers to avoid customs duties on incoming packages that are valued at less than $800, its shipments are less likely to face the same U.S. customs scrutiny as other retailers.
“American exchanges should have a zero-tolerance policy for foreign companies that seek access to our markets but refuse to follow our laws,” especially when those laws are meant to prevent human rights abuses, the letter concluded.