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Retailer Fined $600,000, Required to Implement Compliance Program for Drawstring Violations

Monday, March 31, 2014
Sandler, Travis & Rosenberg Trade Report

The Consumer Product Safety Commission has provisionally accepted an agreement under which a New Jersey-based clothing retailer will pay a $600,000 civil penalty to settle charges concerning the presence of drawstrings in its garments. This company paid a $35,000 penalty in 2009 to settle similar charges, and the CPSC states that the company “received repeated reminders about the drawstring hazards and applicable law.”

The CPSC alleges that between June 2007 and February 2010 the company sold and/or held for sale to consumers four series of garments consisting of approximately 2,105 children’s upper outerwear garments with drawstrings. The company had presumed and actual knowledge that these garments posed a strangulation hazard and presented a substantial risk of injury to children, the Commission states, but did not file any report with the CPSC, as required by law.

The retailer responds that all of the garments cited in these allegations were purchased before it instituted new buying, receiving and inventory control procedures in December 2008 to reduce the possibility that children’s garments with drawstrings might end up on its shelves. The company further asserts that by the time it settled the previous civil penalty matter most of these garments were already sold, and it therefore disputes any charge that it had knowledge or even a reasonable way to become aware of the remaining garments or of previous sales of the garments. Because it could not reasonably have known about the existence of drawstrings in the garments, the company denies the allegations that it in fact had an obligation to report and/or knowingly failed to report.

Nevertheless, this settlement agreement requires the retailer to fully implement and maintain a compliance program designed to ensure compliance with the laws and regulations enforced by the CPSC. This program will include, at a minimum, the following elements.

- written standards and policies

- procedures for implementing corrective and preventive actions when compliance deficiencies or violations are identified

- a mechanism for confidential employee reporting of compliance-related questions or concerns to either a compliance officer or another senior manager with authority to act as necessary

- effective communication of company compliance-related policies and procedures to applicable employees through training programs or otherwise

- senior manager responsibility for compliance and accountability for violations of the laws and regulations enforced by the CPSC

- board oversight of compliance (if applicable)

- retention of all compliance-related records for at least five years after the CPSC has issued the final order and availability of such records to staff upon request

In addition, the company will be required to maintain and enforce a system of internal controls and procedures designed to ensure that (a) information required to be disclosed to the CPSC is recorded, processed and reported in accordance with applicable law; (b) all reporting made to the CPSC is timely, truthful, complete and accurate; and (c) prompt disclosure is made to the company’s management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to adversely affect in any material respect the company’s ability to record, process and report to the CPSC in accordance with applicable law.

Any interested party may ask the CPSC not to accept this agreement or otherwise comment on its contents by filing a written request no later than April 15.

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