On January 1, 2012, the California Transparency in Supply Chains Act officially went into effect. This law requires retail sellers and manufacturers doing business in the state to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains. The law applies to companies with greater than $100,000,000 in annual worldwide gross receipts.
The law also requires the Franchise Tax Board to make available to the Attorney General a list of retail sellers and manufacturers required to disclose efforts to eradicate slavery and human trafficking pursuant to that provision.
Financial consultants are warning their clients to pay closer attention to the records of potential supply chain partners in light of the new law as they screen vendors and suppliers.
Companies subject to the Act must clearly disclose on their websites the steps taken to evaluate their supply chain and address risks defined in the Act. These steps include audits, certification, internal accountability standards and training.
“The only way for a company to ensure and verify compliance is to start screening their vendors and suppliers,” said Gina Manis-Anderson, CEO of Savii Group, which specializes in risk mitigation and cost containment strategies. Savii offers a Vendor Screening Program providing third party verification and independent auditing for compliance with this and other laws such as Sarbanes Oxley and Patriot Act.
“Just trying to manage the certificate of insurance, licensing, credentials and stability of thousands of vendors and suppliers within a single data repository is a daunting task for most companies,” said Manis-Anderson. She added, however that certification will help protect brands and eliminates the risk of being levied government fines for non-compliance.
The disclosure of this process must be posted on the retail seller’s or manufacturer’s website with a “conspicuous and easily understood link to the required information placed on the business’ homepage,” the law states. If a seller or manufacturer doesn’t have a website, the disclosure must be provided to consumers in writing within 30 days of receiving a written request for the disclosure from a consumer.
The disclosure must detail to what extent, if any, the retail seller or manufacturer does each of the following:
• Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
• Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
• Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
• Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
• 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 the supply chains of products.
Sanctions for violation of this law have not been specified, other than that they shall be met with “an action brought by the Attorney General for injunctive relief.” No limits to such remedies have been established either, according to the act’s wording.