There has been veritable groundswell of recent (and recently-announced) laws and regulations, including the California Transparency in Supply Chains Act, Executive Order On Strengthening Protections Against Trafficking in Persons in Federal Contracts, Business Transparency in Trafficking and Slavery Act, and SEC Conflict Minerals Rules. These brand-new laws and regulations have now taken their place next to the Foreign Corrupt Practices Act, U.S. Travel Act, UK Bribery Act, and Carbon Copy Prosecutions as perennial compliance “hot-topics.” Today’s compliance reality is that, while specialization certainly has its place, businesses and organizations are well-advised to seek compliance professionals with broader compliance experiences to help them devise customized, integrated compliance programs that are responsive to the broad spectrum of today’s domestic and foreign risks. To underscore this point, consider the focus and scope of some of these new laws.
Summary of Key Legislation and Regulations
- Executive Order Designed to Strengthen Protections Against Trafficking in Persons in Federal Contracting
On September 25, 2012, President Obama signed a landmark Executive Order aimed at rooting out human trafficking in federal contracting. To strengthen the government’s zero-tolerance policy on human trafficking by federal contractors and subcontractors, the Executive Order prohibits federal contractors (and their subcontractors) from engaging in a number of trafficking-related activities, such as using misleading or fraudulent practices to recruit employees or destroying or confiscating an employee’s identity documents. The Executive Order therefore requires all federal contractors and subcontractors to take the following actions:
Certify. File annual certifications confirming that neither the contractor nor its employees engaged in any trafficking-related activities; if violations were identified, the contractor must take appropriate (1) remedial and (2) referral action.
Prevent. Take concrete steps to ensure that their employees do not engage in trafficking-related activities.
Comply. For contracts exceeding $500 million and involving services to be performed abroad, develop and maintain detailed compliance plans.
Self-Report. Self-report any activities that are “inconsistent with” the Executive Order.
- California Transparency in Supply Chains Act
The California Transparency in Supply Chains Act of 2010, which went into effect on January 1, 2012, applies to all:
(1) retail sellers and manufacturers;
(2) with more than $100 million in annual global gross receipts;
(3) that “do business” in California.
The Act requires these businesses to disclose (through a link on the homepage of their websites) in considerable detail their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale. Interestingly, the Act does not provide for civil penalties — it only provides for injunctive relief through the California Attorney General. That said, the legislation is uniquely structured to facilitate change through business, legal, and social pressures brought by consumers, advocacy groups, class action attorneys, and the like.
- (Pending) Federal Business Transparency on Trafficking and Slavery Act Federal (H.R. 2759)
The proposed Business Transparency on Trafficking and Slavery Act, which has enjoyed considerable bipartisan support, will cover all (1) publicly-traded companies (2) with annual worldwide global receipts in excess of $100,000,000. These covered companies will have to disclose the measures taken during the year to identify and address conditions of forced labor, slavery, human trafficking, and the worst forms of child labor within their supply chains. This disclosure must be displayed on the company’s website homepage through a conspicuous and easily understood link entitled ”Policies to Address Forced Labor, Slavery, Human Trafficking and the Worst Forms of Child Labor.” Companies, moreover, would be required to make these disclosures in their reports to the SEC. In turn, the SEC will make available to the public a searchable database comprised of the information submitted pursuant to these rules.
- SEC Conflict Mineral Disclosure Rules
In August of this year the SEC announced the long-awaited Dodd-Frank Wall Street Reform and Consumer Protection Act’s final disclosure and reporting rules concerning “conflict minerals.” As defined in the act, conflict minerals include gold, tin, tantalum, tungsten and their derivatives, or any other mineral or mineral derivative as determined by the secretary of state to be financing conflict in “covered countries” — the Democratic Republic of Congo or an adjoining country. Subject companies, beginning for calendar year 2013, must conduct a reasonable country of origin inquiry and File a Form SD with the SEC.
Foreign Corrupt Practices Act & U.S. Travel Act
As most readers will know, the FCPA was enacted to criminalize bribing foreign government officials for the purpose of obtaining or retaining business. A company violating the FCPA could face up to a $2 million fine, whereas individual who has violated the FCPA faces up to five years of imprisonment and a $250,000 fine.
Though a company has not paid any bribes to foreign officials that could give rise to liability under the FCPA, it could still be held liable under the U.S. Travel Act, codified at 18 U.S.C. § 1952. This law allows the Department of Justice to prosecute companies who have bribed non-government foreign business representatives-also known as “commercial bribery.” A violation of the Travel Act can lead to penalties of up to $250,000 and five years imprisonment.
UK Bribery Act
The much-anticipated U.K. Bribery Act went into effect on July 1, 2011. Possible penalties for violating this Act include up to ten years imprisonment for individuals and unlimited fines for individuals and companies. The U.K. Bribery act reaches more broadly than its U.S. anti-corruption statute counterparts, the FCPA and Travel Act. For example, it criminalizes both giving and receiving bribes, and contains an unmatched extraterritorial reach by applying to businesses carry on any part of a business in any part of the U.K.
Designing a Corporate Compliance Program
It is, of course, not possible to always avoid supply chain and other problems. That said, and in light of the emerging risk areas summarized above, here are some basic steps every company directly or indirectly engaging in foreign business should consider taking:
√ Map and Assess supply chain risk profile; identify areas of greatest exposure and devise practical plan to address them;
√ Integrate and Tailor a clear, concise policy against forced labor, bribery & corruption, and (as appropriate) conflict minerals. Align policy with risk profile;
√ Institute focused training programs for employees and managers with direct responsibility over supply chain management. Raise awareness and ability to root out bad actors;
√ Maintain clear accountability standards and procedures for transaction partners and employees;
√ Establish a system of basic due diligence and vetting for current and prospective suppliers;
√ Require appropriate certifications (and be able to demonstrate that the company did not just “take their word” for it);
√ Operate an anonymous reporting hotline and know when to escalate to outside counsel;
√ Consider limited, targeted supplier audits to evaluate supplier compliance with your standards for labor exploitation; and
√ Keep careful track of problems averted and bad actors rooted out.
Compliance professionals recognize that today’s effective compliance program goes far beyond simply arranging for the occasional FCPA training or updating of codes of business conduct. By coordinating compliance efforts to address the various risks sketched out above, businesses put themselves in the best position to avoid potentially devastating criminal and civil liability. Moreover, these companies may avoid consumer and advocacy group actions, and can demonstrate to U.S. and foreign authorities that their compliance efforts are genuine and up to contemporary best-practices standards.
 T. Markus Funk is a Perkins Coie Partner, former federal prosecutor who served in the Balkans with the U.S. State Department, and Co-Chair of the firm’s Corporate Social Responsibility and Supply Chain Compliance Practice (the first such specialized practice among the AmLaw100 firms).
 Elizabeth M. Banzhoff is an associate with Perkins Coie. She previously served as a law clerk to the Hon. Richard Smoak, U.S. District Court for the Northern District of Florida, and Chief Justice Michael L. Bender of the Colorado Supreme Court.
 Executive Order-Strengthening Protections Against Trafficking In Persons In Federal Contracts, available at http://www.whitehouse.gov/the-press-office/2012/09/25/executive-order-strengthening-protections-against-trafficking-persons-fe.
 See T. Markus Funk, Understanding the UK Bribery Act as it Relates to Organizations (Section 7), available at http://www.perkinscoie.com/files/upload/LIT_11_12FlowChart_UKBriberyAct.pdf.
 See Funk, supra note 13. The Bribery Act extends to England, Wales, Scotland, and Northern Ireland.
Markus Funk, A seasoned trial attorney and investigator, Markus helped establish and co-chairs the firm's Corporate Social Responsibility and Supply Chain Practice (the first such specialized practice among the AmLaw100). Markus represents corporate and individual clients in the areas of internal investigations, compliance, corporate white collar criminal defense, and complex commercial litigation. As a federal prosecutor in Chicago with ten years’ experience, Markus tried more than 24 federal cases (achieving convictions in all of them), headed hundreds of investigations, indicted hundreds of cases, and also has extensive appellate experience. In 2012, Law Week Colorado named Markus the state’s top corporate/compliance lawyer.