Modern slavery: Conducting supply chain risk assessment and due diligence

Modern slavery in businesses and supply chains in Canada - Part 11

05 May 2021

In Part 10 of my series Where do we start?, I recommended that Canadian businesses adopt a governing principle that they would not tolerate or utilize modern slavery (forced labour, child labour and human trafficked labour) in their business and supply chains.



Assuming that your business has adopted a governing principle as noted above or established a code of conduct with the same effect, the next step is to identify and to assess the risk that there is modern slavery in the business and its supply chains. While each risk assessment is bespoke to that individual business, there are some common elements to this process.

These common elements generally follow or are inspired by international norms and standards such as the UN Guiding Principles on Business and Human Rights and the Organization for Economic Co-Operation and Development (OECD) Guidelines for Multi-National Enterprises that speak to the obligations of businesses to conduct human rights due diligence. For example, the latter recommends that businesses carry out risk-based due diligence in order to identify, prevent and mitigate actual and potential adverse human rights impacts and account for how these impacts are addressed.  

  1. Supply Chain Mapping – This process is intended to identify each direct and indirect supplier and participant in the supply chain. This would include, ideally, every contractor, supplier, sub-contractor, shipper, logistics and distribution services provider, sub-supplier, recruiter, processor, labour broker or other service provider. Many businesses simply do not have a clear end-to-end picture of their supply chains. As you know already, the greater the complexity of your business operations and supply chain, the greater the challenge if will be to effectively map and validate the risks therein. 
  2. Risk Assessment – Effective risk assessment must use an appropriate methodology that, ideally, should include both quantitative and qualitative assessment and analysis of the supply chains. Quantitative analysis can include assessment of suppliers based on the dollar value of the businesses spend with the supplier as well as quantifying the percentage of finished product input costs for which the supplier is responsible. Qualitative analysis may focus on the specific input provided by the supplier, the industry, the geographic location, the characteristics of the labour group, etc. The impetus for this approach is to enhance deployment of resources to higher risk components of the business operations and supply chain. 
  3. Due Diligence – This will be a fact-finding process to enable the business to investigate and understand objectively what is going on in the business and its supply chain. Salient information can be obtained through and from a large number of channels and sources including due diligence questionnaires, telephone calls, review of business documentation, financial statements, reports of social audits, announced and unannounced factory and site visits, etc. Due diligence/or can be carried out directly by the business and/or by third parties retained by the business. 

For example, for businesses embarking on this task in order to ultimately comply with the prohibition in the Tariff Act (Canada) on the importation of goods made in whole or in part with forced labour, they must ensure that the information provided to Canada Border Services Agency is "true, accurate and complete". 

For Canadian businesses exporting to the United States, U.S. Customs and Border Protection (CBP) has confirmed that the importer of record is responsible for using "reasonable care" in respect of the information necessary to enable CBP to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met. Section 307 of the U.S. Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor – including forced child labor.

From the very outset, businesses should have a well-defined purpose and a clearly articulated strategy for its supply chain mapping, risk assessment and due diligence, as well as a full understanding of the legal standard for such review.  With respect, and as attributed to Hall of Fame New York Yankee Yogi Berra, "If you don’t know where you’re going, you will wind up somewhere else."

Part 12 of my series will address how businesses can operationalize the governing principles within business operations and supply chains in order to ensure long-term success and sustainability of the business.

For further information, please read the first nine parts of our Guide to addressing modern slavery in your business and supply chain for Canadian directors:

To find out more about how Gowling WLG can help your business expertly organize and manage due diligence and other governance, compliance and supply chain issues, please contact the author.


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