Dec 23, 2024

Navigating Forced Labor Regulations: What Businesses Need to Know

As global forced labor regulations tighten, businesses face unprecedented pressure to achieve supply chain transparency. With regulations like the U.S. Forced Labor Prevention Act, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) and Forced Labor Regulation, Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act, and Mexico’s Import Ban on Goods Produced with Forced Labor, companies must act now to align with international due diligence laws and protect their brands.

Billions of dollars are at stake if they don’t. To date in 2024, U.S. Customs and Border Protection (CBP) has detained over 4,600 shipments with a value of $1.73 billion for suspected forced labor violations. Nearly 1,750 of these shipments — many of which were electronics, textiles, manufacturing, and agricultural products — were denied entry. Numerous suppliers have already been added to the Department of Homeland Security’s Entity List due to their involvement in or connections to forced labor practices. More businesses should be on high alert, given that earlier this year, the U.S. Forced Labor Enforcement Task Force added three high-risk industries for forced labor to its implementation plan: polyvinyl chloride (PVC), aluminum, and seafood.

To stay ahead of these regulations and avoid costly seizures, penalties, and reputational harm, businesses need to recognize four truths about forced labor compliance.

1. Supply chain mapping is the foundation of compliance

Understanding your supply chain is no longer optional — it’s a regulatory mandate that lies at the heart of compliance with forced labor laws. Businesses must be able to identify and evaluate every link in their supply chain, from raw material sources to finished goods.

Most companies lack visibility beyond their direct (Tier 1) suppliers. This limited transparency poses significant compliance challenges, as stringent forced labor regulations prohibit goods produced, even partially, through forced labor.

Comprehensive supply chain mapping is the first step to managing these risks effectively. Supply chain mapping involves working with your direct suppliers to identify their suppliers and document the origins of materials and the processes, cascading upstream for each stage of production. Without clear visibility throughout every tier of the supply chain, businesses risk inadvertently sourcing from suppliers linked to forced labor.

2. Transaction traceability and chain of custody are critical

To clear customs under forced labor regulations, businesses often need to provide detailed documentation tracing the journey of goods from their point of origin to the finished product. This evidence, called chain of custody, involves maintaining a record of every transaction, transport, and transfer that occurs along the supply chain. To establish a clear chain of custody, companies must collect and retain transportation records, such as bills of lading and shipping manifests, and payment documentation.

Maintaining a clear chain of custody ensures compliance and builds trust with regulators and customers. Companies that fail to provide adequate documentation risk delays, detentions, and even outright bans. While not all laws mandate keeping these records, they are strong verification tools for demonstrating compliance.

3. Digital supply chain mapping is the future

As regulatory trends point toward a future where digital tools dominate supply chain management, companies that embrace digital transformation today will be better positioned to meet compliance requirements tomorrow.

The U.S. is set to launch its Automated Commercial Environment (ACE) 2.0 in 2026 for all products placed on the U.S. market, while the EU is launching its Digital Product Passport. Both initiatives aim to ensure that every product sold in regulated markets has a verified digital history, enabling easier tracking of goods and their compliance with labor laws.

Digital supply chain mapping future-proofs businesses against the complexities of global trade regulations. These tools provide a holistic view of the supply chain, identifying gaps and risks in real time. Automation reduces the manual effort required for data collection, minimizing errors and ensuring compliance with minimal delay. And, as businesses grow, digital systems can easily adapt to handle increased complexity and data volume.

A company that digitizes its supply chain data can quickly generate a compliance report when challenged by customs authorities, avoiding costly delays.

4. Penalties for noncompliance are severe

Failure to comply with forced labor regulations can lead to substantial financial penalties, shipment seizures, and lasting reputational damage.

Seized goods can result in financial losses due to delays, storage costs, or outright bans. Companies may be forced to store goods indefinitely at the border or withdraw goods already in the market.

Moreover, companies can face significant fines for importing goods tainted by forced labor. In the U.S., each violation can cost tens of thousands of dollars. In the EU, penalties can reach 4% of a company’s annual global revenue.

Brands that fail to ensure transparency risk being associated with unethical labor practices, which can erode customer trust and investor confidence. They may face boycotts or exclusion from ethical investment portfolios. Stakeholders, including investors and consumers, may also file lawsuits if a company is found to have violated forced labor laws.

How Sourcemap can help

With intensifying regulations and enforcement, businesses must prioritize supply chain transparency. Sourcemap’s tools ensure you stay compliant, protect your brand, and build a resilient, ethical supply chain. We offer a comprehensive suite of solutions to help you navigate forced labor regulations and safeguard your supply chain:

Supply chain mapping and supplier discovery: Gain visibility into every supplier in your network, from raw materials to finished goods.
Supplier Watchlist Monitoring: Stay ahead of risks with real-time alerts on suppliers flagged for forced labor violations or risks.
Chain of custody document collection: Simplify the documentation process with secure, centralized storage of records for every purchase order.
Mock detention workflows: Prepare for inspections and detentions by testing your documentation readiness.
On-demand reporting: Generate the necessary reports instantly to satisfy customs and regulatory inquiries.