A Conflict Minerals Copy Cat? California Disclosure Requirements for Human Trafficking and Slavery

2010 seemed to be the year of politicians passing sweeping legislation containing hidden provisions that created legal compliance requirements impacting the industry. In September 2010, the State of California passed a law requiring companies doing business in California that have annual gross global receipts in excess of $100 million to disclose on their website company efforts to ensure their supply chains do not support human trafficking or slavery. As the conflict minerals legislation was hidden within the financial reform bill (see related conflict minerals article on previous page), California’s piece of legislation was an amendment to the state’s Revenue and Tax Code. While the California legislators stated that they were targeting the legislation toward large commercial retailers, the bill will have unintended consequences on the electronics industry. Like conflict minerals, California’s human trafficking legislation has the potential to impose costly burdens as the entire supply chain will be questioned and audited regarding their social responsibility practices. This piece of legislation is yet another obstacle for companies to overcome in order to continue doing business.

The stated intent of the legislation from California officials is for manufacturers and retailers to provide consumers with information regarding their efforts to eradicate human trafficking and slavery from their supply chains. The legislators’ presumed outcome is that when consumers are equipped with the information they will choose not to buy products from companies that do not take prescribed steps to avoid having traces of human trafficking and slavery in their supply chains.

“Doing business” is defined as actively engaging in any transaction for the purpose of financial monetary gain or profit.2 The law mandates a set of disclosure requirements that will necessitate companies to provide substantial information and undergo extensive audits. Businesses will be hard pressed to obtain the information required in the law because mechanisms needed for gathering this type of information do not exist. Furthermore, the January 1, 2012, deadline for disclosing information does not leave industry nearly enough time to begin gathering the necessary information. As with conflict minerals, the California disclosure law will cost companies significant time and money. Nonetheless, industry must comply in order to continue doing business in the state of California.

The law states the disclosure requirements for companies. Companies must disclose to what extent, if any, they are doing the following:

  • All information on a company’s efforts, if any, to eradicate slavery and human trafficking must be on the company’s webpage. The link to this information must be easy to understand and conspicuously located on the homepage.
  • Performs verification of product supply chains to evaluate and address risks of human trafficking and slavery, including disclosing if verification was not conducted by a third party.
  • Conducts audits of suppliers to evaluate supplier compliance with company standards on human trafficking and slavery, including disclosing if audits are not independent and unannounced.
  • Requires direct suppliers to certify that materials incorporated into the product comply with human trafficking and slavery laws of the country or countries in which they are doing business.
  • Maintains internal accountability standards and procedures for employees and contractors failing to meet company standards regarding human trafficking and slavery.
  • Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within supply chains.

California’s human trafficking and slavery law will take effect January 1, 2012, and will impact your business if you or your customers do business in California. If you think that your company is not impacted because your company doesn’t sell products in the State of California, think again. Your current and potential customers in California will most likely request information from your company on efforts to eradicate human trafficking and slavery. Because most companies will likely choose to continue conducting business in California, the world’s eighth largest economy, it is expected that the entire electronics supply chain will be impacted. While the disclosure requirements only apply to companies with annual gross global receipts in excess of $100 million, there will be broader implications for the entire electronics supply chain.

IPC will hold a webinar on this important topic on August 16. More details are available at www.ipc.org/summer-webinars.

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