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California Supply Chain Transparency Law Takes Effect Jan. 1

Friday, November 18, 2011
Sandler, Travis & Rosenberg Trade Report

California’s controversial Transparency in Supply Chains Act will go into effect Jan. 1, 2012, requiring many retailers and manufacturers to begin posting on their Web sites disclosures of efforts they have taken to assess the risks of and eradicate human trafficking and slavery from their supply chains. Companies that do not have Web sites will be required to send written disclosure statements to anyone that requests them within 30 days of receipt of a request. A similar federal law is under consideration and could impose disclosure requirements nationwide.

Under the TSCA, retailers and manufacturers doing business in California that have worldwide gross receipts in excess of $100 million must disclose their efforts to:

• assess the risks of human trafficking and slavery in their international supply chains (through either internal reviews or third-party assessments);

• perform audits to confirm whether suppliers are complying with their established policies and prohibitions on human trafficking and slavery and whether such audits include unannounced visits to suppliers’ facilities;

• require suppliers to provide certifications that the materials used in their products comply with the laws regarding slavery and human trafficking of the country or countries in which they do business;

• implement internal accountability standards and procedures for employees or contractors who fail to comply with the company’s policies and prohibitions regarding slavery and human trafficking; and

• train company employees and managers involved in supply chain management on the risks associated with slavery and human trafficking.

Curiously, the TSCA only requires companies to disclose the extent of their efforts (if any) to address these supply chain risks and does not impose any additional requirements with regard to the implementation of specific policies, procedures or prohibitions. Companies could ostensibly comply with the TSCA disclosure requirement by merely issuing a statement that they have made no efforts at all. Of course, doing so would likely draw swift criticism and negative publicity from the media, consumers and investors. Many companies have therefore already begun to prepare for the Jan. 1 deadline by expanding their current corporate social responsibility programs to address TSCA risks.

The TSCA disclosure requirements will be enforced through litigation by California’s attorney general, who may seek injunctive relief against companies who fail to disclose or provide inaccurate information in their disclosures. However, the language of the TSCA does not expressly preclude the filing of additional claims for relief under other California laws, and it is possible that we may eventually see a rash of private citizens filing TSCA lawsuits in the same way that they do in California’s Proposition 65 cases.

As a side note, Congresswoman Carolyn Maloney, D-N.Y., introduced Aug. 3 the Business Transparency on Trafficking and Slavery Act (H.R. 2759), which contains requirements that closely track those of California’s TSCA. H.R. 2759 would require companies to disclose any measures taken to identify and address instances of human trafficking, slavery and the worst forms of child labor in their supply chains. The legislation would require companies to include such disclosures in their annual reports to the Securities and Exchange Commission and post them on their Web sites. H.R. 2759 was referred to the House Committee on Financial Services and the Subcommittee on Capital Markets and Government Sponsored Enterprises on Aug. 22; however, no hearings or other actions have yet been taken to move that bill forward.

For more information about the TSCA, other California laws and regulations impacting international supply chains, or H.R. 2759 please contact Melissa Miller Proctor at (480) 305-2110 or Matt Nakachi at (415) 986-1088.

You can also stay up-to-date on the latest developments on this issue by subscribing to ST&R’s WorldTrade\INTERACTIVE daily e-newsletter.

Sandler, Travis & Rosenberg, P.A. (ST&R) is a customs and international trade law firm concentrating its practice in assisting clients with the movement of goods, personnel and ideas across international borders. ST&R provides governments, manufacturers, importers, exporters and retailers the advice and counsel they require to succeed amid the constantly changing demands of global trade.

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Published by Sandler, Travis & Rosenberg, P.A.

NOTE: Information contained herein is of necessity a summary of complicated and fact-specific issues. It is not intended to convey legal advice, and receipt of it does not constitute or create an attorney-client relationship. Before you act on any information provided in this document, you should seek professional advice regarding its applicability to your specific circumstances.

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