How to Avoid Contracting With a Company That Uses Forced Labor
As a small or medium business owner, you may not think human trafficking, or forced labor, is something you need to worry about. But despite not being as close to the issue as global companies may be, you can still take measures as an SMB to help fight human trafficking in your supply chain or by downstream partners. When you’ve done your due diligence as a business owner and can confidently say you don’t partner with companies that use forced labor, you can deliver your products and services to your customers with pride and peace of mind. Here are three steps to help you avoid contracting with companies that may use forced labor.
Always Know Who You’re Buying From
The first step in avoiding unethical companies is to find out who the beneficial owners are and whether or not they are reputable.
Finding out who’s really in control of the business you want to contract with might not be simple. And just because that firm doesn’t use forced labor itself, doesn’t mean the companies it works with or sells to isn’t using forced labor.
Take animal testing as an example: If you wanted to buy a cosmetic product that wasn’t tested on animals, you might research the exact brand you wanted to buy. But what you may not realize is that the brand is owned by a company that also sells its cosmetics to a country (like China1) that requires animal testing for imported cosmetics. So while the lip balm brand you love may reject testing on animals, its parent company might actually do such testing before selling to another country. The same goes for contracting: Your direct business partner may not use forced labor, but somewhere along the supply chain, it may still exist.
Be Wary of Companies That Operate in High-Risk Countries
The second step in avoiding unethical companies is to identify all locations of operation and assess the risk associated with those locations.
Following the cosmetics example, knowing where a product is made can be indicative of certain behaviors. Some countries are higher risk for compliance issues like human trafficking, which means companies with operations in those countries are at higher risk for using forced labor. There are likely plenty of firms that operate in high-risk areas without forced labor, but it doesn’t hurt to pay closer attention to these cases. Dun & Bradstreet’s Human Trafficking Risk Index can help you learn more about high-risk countries.
Look for Past Legal Issues
The third step is to see if a company has taken part in risky or unethical practices in the past.
A company’s business credit report will show any suits, liens, or judgments against the company. You can also do outside research to see if the company has been involved in or convicted of human rights violations in the past. Other types of unethical or questionable business practices don’t mean the company is using forced labor, but knowing about them will help you make a more informed decision about the kinds of companies you want to associate with.
Check the Business Structure
The final step is to check where a company is registered or incorporated.
Some businesses will hide behind offshore companies or will register their business in a country with lax laws and regulations. For example, the website mugshots.com is registered on the Caribbean island of Nevis, which boasts exemption from income, withholding, gift, estate, and succession taxes, as well as no foreign exchange restrictions and offshore asset protection.2 If a company is willing to take extra measures to avoid certain taxes and restrictions, they could also be taking advantage of other loop holes, or simply not keeping up with new regulations, such as those on human trafficking. Make sure you’re working with a reputable company, and that you can identify who’s running it, before entering into any business agreements.
At the end of the day, you want to be 100 percent comfortable with how you’ve conducted business and able to deliver your products or services proudly to your customers. If you’re not sure how to get started with any of these tips, visit our “Compliance for Small Businesses” guide.