April 2022

By Ben Hoffschneider

Throughout the 21st century, the US has been a leader in identifying and, at times, sanctioning human rights abuses globally. In doing so, the U.S. has used various approaches including but not limited to the State Department’s annual Country Reports on Human Rights Practices and OFAC’s Global Magnitsky Sanctions list. The Federal Government has not, however, required private sector companies to conduct due diligence and/or report on human rights violations within their corporate structures or their massive supply chains. California became the first state in the U.S. to address federal government's unwillingness to require companies to identify human rights violations when, In 2011, the California state legislature passed, and the Governor signed, The California Transparency in Supply Chains Act of 2010 (The “California Act”).

The California Act established transparency and reporting obligations for corporate entities and was the first law in the U.S. to do so. In fact, California's legislation inspired legislation such as the 2015 UK Modern Slavery Act. The California Act requires private companies, including publicly traded companies to their efforts to identify, remediate and eliminate human rights violations in their supply chains including companies subject to the California Act include companies doing business in California and having revenues of over 100 million USD. Since California is the 7th largest economy in the world, proponents of the Act intended the law's coverage to be broad. Additionally, reporting pursuant to the Act includes the steps taken to verify product supply chains, audit suppliers, and maintain standards and training. If companies fail to comply with the Act's requirements, the Attorney General may take civil and/or criminal actions. In the 10 years the Act has been in effect, no Attorney General has taken action against a company for violating the Act’s requirements.

Following the adoption of the California Transparency in Supply Chains Act, several bills have been introduced in Congress that would require publicly listed companies to make similar disclosures. To date, no bill has generated sufficient support to pass both the House and the Senate. One bill introduced in Congress by Rep. Carolyn B. Maloney of New York in 2015 was the Business Supply Chain Transparency on Trafficking and Slavery Act (BSCTA). BSCTA envisioned an SEC-administered system of public disclosures that would identify and address forced labor, slavery, human trafficking, and child labor within supply chains. While the legislation gained public support, the House Committee on Financial Services failed to take the bill to a Committee vote resulting in its death in the Committee. In 2019, The House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets introduced the draft Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act. This bill, if passed, would have amended the Securities Exchange Act of 1934, and created a system of SEC-regulated due diligence and public disclosure of human rights violations. A third bill, the draft Slave-Free Business Certification Act, introduced to the Senate by Senator Josh Hawley of Missouri, would have provided for the Department of Labor to develop and implement a requirement for all publicly traded companies to disclose their supply chains. This bill would have provided significant financial penalties for failing to disclose supply chains and a requirement that supply chains be audited and results published. The bill was referred to the Committee on Health, Education, Labor, and Pensions, where it has not yet received a vote.

The Canadian Parliament is also trying to pass legislation mandating due diligence and human rights reporting. Multiple iterations of bills have been introduced that include supply chain reporting requirements. The most recent legislation introduced in the Canadian Senate on November 24, 2021 is S-211, An Act to Enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff. The bill would apply reporting requirements to any “Canadian-linked” public entity with either 20 million CAD in assets, 40 million CAD in revenue, or at least 250 employees, as well as government institutions that produce, purchase, or distribute goods. The bill has received significant public support, a support from multiple parties within the Canadian parliament.