FASHION LAW
Ensuring ethical sourcing in the supply chain
Suppliers, distributors, principals, agents, wholesalers and retailers – why you are now at greater risk of committing a criminal offence.
T
owards the end of June the Court of Appeal gave judgment which has significantly increased the risk for businesses at any point of a supply chain of committing a criminal offence – where goods are made in contravention of environmental and working conditions laws. The case before the Court of Appeal concerned cotton goods which it was claimed were produced through forced Uyghur labour, so rendering them criminally tainted under UK law. However, it is not just in China that goods are produced using forced or child labour. Further, the Court of Appeal’s decision can also be applied to goods which have been manufactured in breach of environmental laws anywhere in the world.
Why are businesses in supply chains affected?
The handling of goods tainted by criminality means that money laundering is occurring for the purposes of the Proceeds of Crime Act 2002 (POCA), a statute designed to tackle money laundering by enabling the confiscation or civil recovery of proceeds derived from criminal activities.
A business that knows or even simply suspects that there has been a breach of forced or child labour laws or environmental laws could be at risk of prosecution. As a result, all businesses in supply chains should urgently map their supply chains to ensure compliance. They need to rigorously review purchase agreements and confirm that their products do not involve forced or child labour or breach environmental laws.
Key rulings of the Court of Appeal
The Court of Appeal made two pivotal determinations. Firstly, Identification of Criminal Property: The court ruled that it is unnecessary to identify a specific consignment of forced labour cotton for the NCA to initiate an investigation. This effectively broadens the scope for investigating and addressing forced labour in supply chains.
Secondly, Status of Criminal Property Post- Transaction: The court refuted the notion that criminal property is “cleansed” once sold at market value. Instead, while a purchaser paying market value is protected, this protection
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does not extend to subsequent transactions. Essentially, criminal property remains tainted, and liability can transfer to subsequent buyers.
Immediate actions required In light of these developments, companies should: Conduct comprehensive supply chain audits: urgently review supply chains and purchase agreements to verify the absence of forced or child labour or breach of environmental laws; Source alternative products: if forced or child labour or breach of environmental laws is detected, companies must find alternative sources that comply with ethical standards; Review legal agreements: examine terms and conditions to mitigate potential claims for damages upstream and downstream the supply chain; Insurance review: assess directors and officers liability insurance to ensure continued coverage; Modern Slavery Act compliance: update Modern Slavery Act statements to reflect the heightened due diligence efforts.
Potential government response The Labour government may need to introduce a moratorium to provide businesses time to adjust their supply chains in response to this judgment. The process of onboarding new
manufacturers is complex and time-consuming, making immediate compliance at best challenging.
Future National Crime Agency actions
In the wake of the Court of Appeal’s decision, the NCA is likely to reassess its stance on investigating the specific concerns raised by the appellants in this case. This could herald a new era of heightened scrutiny and enforcement regarding forced or child labour and environmental laws in supply chains. The treatment of Uyghurs and its implications for supply chains is a pressing legal and ethical issue that demands immediate attention from businesses. The Court of Appeal’s judgment serves as a pivotal moment, reinforcing the need for comprehensive due diligence and ethical sourcing practices to ensure compliance and uphold human rights.
Stephen Sidkin is a commercial law partner at Fox Williams LLP (
www.fashionlaw.co.uk;
www.foxwilliams.com).
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