Global supply chains expose companies to risks associated with human rights abuses in their supply chain. Governments and international organizations are taking coordinated actions to address these issues through legislation and policies. The US, UK, EU, and ILO are developing regulations requiring companies to conduct due diligence on their suppliers to prevent forced labor, slavery, and human trafficking. While progress is being made, human rights risks in global supply chains remain a complex problem requiring a collaborative global solution that also protects victims.

1. Complex supply chains that wind around the world can leave multinational
companies vulnerable to ties with firms linked to human-rights abuses,exposing
businesses and their leaders to an array of financial,regulatory,legislative,legal
and reputational risks.Publically disclosing policies and management systems that help
identify labor traffickers and violations, passing supply chain transparency legislation,
and establishing tough laws and penalties for human trafficking and slavery give supply
chain leaders direction in tackling this challenging issue. Proactive policies also will
help companies avoid costly supply chain disruptions.
Understanding and evaluating current anti-human-trafficking compliance regulations is
essential,as well as designing policies and programs to monitor the practices of suppliers
throughout the global supply chain.While most companies have systems in place for
internal operations,it’s also imperative that they incorporate policies to ensure compli-
ance with new, modified human-rights-related legislation.
A Coordinated, Global Effort
The International Labor Organization (ILO) estimates that globally there are 21 million
people in forced labor, which is nearly equal to the country populations of Australia,
Madagascar orTaiwan.Not surprisingly,11.4 million of these individuals are women and
girls who are trapped by labor recruiters,contractors and employers in manufacturing,
construction, agriculture, entertainment and domestic work.
Preventing Human
Rights-Related Risks in
Global Supply Chains
Exclusively for Supply Leaders in the ISM Corporate Program Vol. 5:2 April 2015
Insights for Today’s Supply Leaders
ISM Forward Scan
By Adriana Sanford, J.D., Dual LL.M., and Bruce Zagaris

2. The eradication of human-rights-related abuses requires
a global coordinated effort across governments and law
enforcement to combat the use of violence,debt bondage
or other forms of coercion that force people to work
against their will. Failure to adequately manage these
risks can dramatically effect multinational companies,
shareholders and communities.
In the past several years,the U.S.government has supported
legislation and policies that address global human-rights
issues in the supply chain.InAugust 2012,the U.S.Security
and Exchange Commissions (SEC) issued its final rule on
conflict minerals pursuant to Dodd-Frank Section 1502.
The rule described the assessment and reporting require-
ments for issuers — any legal entity that develops,registers
and sells securities for the purpose of financing its opera-
tions — whose products contain conflict minerals.It’s esti-
mated at least half of all SEC issuers were affected by the
rule because conflict minerals (tin,tantalum,tungsten and
gold) are used in a wide range of products across numerous
industries,including automotive,aerospace and defense.
Also, on September 25, 2012, President Barack Obama
issued an executive order strengthening protections in
federal contracts against human trafficking.As the largest
single purchaser of goods and services in the world, the
U.S.government understands its responsibility to combat
human trafficking at home and abroad, as well as ensure
that U.S. tax dollars do not contribute to the problem.
The order directs the Federal Acquisition Regulatory
(FAR) Council, working with the appropriate agencies,
to amend federal contracting regulations to:
• Prohibit federal contractors, subcontractors
and their employees from engaging in certain
trafficking-related practices, such as misleading
or fraudulent recruitment practices, charging
employees’ recruitment fees and destroying or
confiscating employee’s identity documents.
• Apply new, customized compliance measures for
work exceeding US$500,000 that is performed
abroad, requiring federal contractors and subcon-
tractors to have compliance plans appropriate for
the nature and scope of the activities performed.
• Set up a process to identify industries and sectors
that have a history of human trafficking in order
to strengthen compliance on domestic contracts.
International Initiatives
Of course, supply chain leaders also need to be aware
of regulations addressing human trafficking and conflict
minerals across the globe. In March 2014, the European
Commission proposed a regulation establishing an EU
system of self-certification for importers of conflict min-
erals that choose to import responsibly into the Euro-
pean Union.After hearings late last year, the regulation
is expected to be adopted.
Self-certification requires EU importers of conflict metals
and their ores to exercise due diligence — avoid causing
harm on the ground — by monitoring and administering
their purchases and sales in line with the five steps of the
Organization for Economic Cooperation and Develop-
ment (OECD) Due Diligence Guidance.
The regulation offers EU importers an opportunity to
strengthen existing efforts to ensure clean supply chains
when trading legitimately with operators in conflict-
affected countries.To strengthen public accountability of
smelters and refiners, increase supply chain transparency
and facilitate responsible mineral sourcing, the EU plans
to publish an annual list of EU and global responsible
smelters and refiners.
The EU initiative proposes various incentives supporting
the regulation to encourage supply chain due diligence
by EU companies. Some of the incentives include:
• Public procurement incentives for companies
selling products such as mobile phones, printers,
and computers containing tin, tantalum, tungsten
and gold
• Financial support for small and middle-market
enterprises to carry out due diligence and for the
OECD to develop outreach activities
• Recognition for EU companies that source respon-
sibly from conflict-affected countries or areas
• Policy dialogues and diplomat outreach with gov-
ernments in extraction, processing and consuming
countries to encourage broader due diligence.
The EU proposal came about after public hearings, an
impact assessment and extensive consultations with the
OECD, businesses and institutions in producer coun-
tries.The G20 also has called for better regulation in the
sourcing of conflict minerals.
The Modern Slavery Bill reflects the UK government’s
determination to lead in the global fight against modern slavery.

3. The Fight Against Modern Slavery
Last year, both the U.S. and UK governments proposed
new legislation to eradicate forced labor, modern day
slavery and human trafficking.The Modern Slavery Bill
reflects the UK government’s determination to lead in
the global fight against modern slavery.It provides a basic
framework other governments can follow and is the first
of its kind in Europe to specifically address this problem
in the 21st century.
The bill proposes tougher sentences for traffickers and
their accomplices. Under the measures, penalties for
slavery, servitude, forced labor and human trafficking
range from 14 years to life.Those previously convicted
of a serious violent offence will automatically receive a
life sentence.The legislation would also create an inde-
pendent anti-slavery commissioner and contain specific
provisions for seizing traffickers’ assets and channeling a
portion to victims.
There also are discussions as to whether the bill should
include legislation governing transparency in supply
chains. Such laws could further effect and significantly
disrupt organized criminal gangs and terrorist groups that
may fall under the radar.
Recent proposed U.S.legislation reflects the broader trend
toward regulated supply chain transparency.The federal
legislation,H.R.4842,would require U.S.companies with
annual worldwide gross receipts exceeding $100 million
to disclose to the SEC their efforts to identify and address
specific human rights-related risks in their supply chains.
The legislation requires public disclosure of auditing and
verification procedures, risk assessments, training, reme-
diation plans and accountability mechanisms that address
trafficking and slavery risks.
In addition to retailers and manufacturers,publicly traded
or private companies that meet the annual gross receipts
threshold and are currently required to submit annual
reports to the SEC would be required to file reports
regarding forced labor,slavery,human trafficking and child
labor throughout their supply chains.
Among other requirements, the legislation also proposes
that the U.S. Secretary of Labor, in consultation with
the U.S. Secretary of State, other appropriate federal and
international agencies, independent labor evaluators and
human rights groups,publish a“Top 100”list of companies
that comply with supply chain labor standards and adhere
to the relevant federal and international guidelines.
A Complex Global Problem
Human-rights-related risks in the global supply chain are
an exceptionally complex problem.There is widespread
acknowledgment of the importance of supply chain over-
sight to ensure corporations are not unwittingly com-
plicit in human-rights violations.Also,investors need more
information to adequately evaluate human-rights-related
risks within their portfolios that can adversely effect share-
holder value. Federal legislation is necessary to provide
consumers’ information on which products have been
tainted and better identify companies that are eradicating
human-rights violations within their global supply chain.
Many of the current bills are primarily enforcement-based.
To be effective, proposed legislation must also include
proper protection for victims and their families,otherwise
it’s unlikely to make a difference. Human trafficking and
slavery thrive in countries where victim protection and
victims’rights are weak.More than one-quarter of all vic-
tims of forced labor around the world are children,which
is more than 5 million children. Children as young as 5
years of age have been trafficked and sold.The prevention
and punishment of traffickers requires victims and their
families to cooperate with the prosecution,which is essen-
tial to understanding the complexity of the problems and
its challenges.But there also must be adequate legislation
to sufficiently protect these individuals from further harm.
Legislation is only part of the solution. Our society as a
whole needs to be engaged, as there is a high correlation
between the crime of slavery and other crimes. Human
trafficking and human-rights-related crimes provide a sig-
nificant source of income for organized crime groups and
terrorists organizations — it’s the second-largest source
of profits for international organized crime behind drugs.
According to the ILO,forced labor in the private economy
generates $150 billion in illegal profits per year.As the
preamble of the Universal Declaration of Human Rights
appropriately states,“Recognition of the inherent dignity
and of the equal and inalienable rights of all members of
the human family is the foundation of freedom, justice
and peace in the world.”
Adriana Sanford, J.D., Dual LL.M. is Arizona State Uni-
versity’s Lincoln Professor of Global Corporate Compliance
and Ethics and a clinical associate professor of management
(specializing in law and ethical leadership for managers) at
W. P. Carey School of Business in Tempe, Arizona. She is a
renowned corporate lawyer on matters of international and
comparative law. Sanford provides instruction to more than
1,200 ASU graduate and undergraduate students each year.
She is dual citizen of Chile and the United States and fluent
in Spanish, Portuguese, English and French. Bruce Zagaris
is a partner with Berliner Corcoran Rowe LLP in Wash-
ington, D.C. He is a founder and editor of the International
Enforcement Law Reporter (www.ielr.com) and an author
of International White Collar Crime: Cases and Materials.

4. Candace Craig
Manager, Corporate Development
800.888.6276 or +1 480.752.6276
extension 3089
ccraig@ism.ws
ISM Forward Scan is an exclusive product for supply leaders in the ISM Corporate Program.This
practical publication focuses on the profession’s next imperatives affecting strategic supply manage-
ment decisions today.The articles provide insights on emerging trends,technology,challenges and
best practices in business.They give decision-makers both a macro and micro view of the supply horizon as a unique tool for
supply leaders to impact their company’s bottom line.Look for more ISM Forward Scan issues throughout the year as a benefit
of being an ISM Corporate Program participant.
For additional information on the ISM Corporate Program, contact:
© 2015. Institute for Supply Management®
. All Rights Reserved.
JC SC633 4/15