Over the last year, legislators and government authorities in Canada have increased efforts to combat corruption and human rights abuses in global supply chains. Such efforts often targeted multinational corporations (MNCs), with the aim of imposing anti-corruption and human rights due diligence obligations on MNCs that will ensure compliance among their small and medium-sized enterprise (SME) suppliers in emerging markets.
While the measures proposed will likely encourage MNCs to be more proactive in identifying and mitigating risks of forced labour and corruption within their supply chains, these measures fail to fully account for the capacity of SME suppliers in emerging markets to implement compliance programs in the face of systemic human rights abuses and corruption.
To ensure their compliance policies have maximal practical effect and prevent legal and reputational damage, companies would do well to educate, support, and invest in the capacity of their suppliers in emerging markets to implement compliance measures themselves.
Combatting modern slavery and corruption in supply chains
Canada’s Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff, passed its second reading in the House of Commons on June 1, 2022 and is currently at the committee stage (which is suspended until after the summer break).[1]
Bill S-211 would impose supply chain reporting requirements on any Canadian-linked “entity” that produces, sells, or distributes goods anywhere in the world, imports goods into Canada, or controls an entity engaged in any of these activities, as well as on Canadian government institutions/SOEs that produce, purchase, or distribute goods anywhere in the world.[2] The bill is very broadly worded, potentially capturing a lot of unintended activities.
An “entity” as defined under Bill S-211 includes any corporation, partnership, organization, etc., that:
- is listed on a stock exchange in Canada;
- has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:
- it has at least $20 million in assets,
- it has generated at least $40 million in revenue, and
- it employs an average of at least 250 employees; or
- is prescribed by regulations.[3]
The definition of “control” is very broad,[4] giving Bill S-211 significant reach, meaning liability will be able to flow through complex corporate structuring.
Bill S-211’s reporting requirements are largely the same for both government institutions and private entities. Bill S-211 requires government institutions and private entities to provide the Minister of Public Safety and Emergency Preparedness with an annual report outlining the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is being used at any step in their respective supply chains (the Report).[5] All Reports must be publicly available in a prominent place on the website of the relevant entity or government institution.[6]
Additionally, Bill S-211 will amend the Customs Tariff[7] to allow the Governor in Council, on recommendation by the Minister of Finance, to make regulations prohibiting the importation of goods manufactured or produced, in whole or in part, by forced labour or child labour.[8]
Canadian authorities have taken more than just legislative action in response to human rights abuses in supply chains. Earlier this year, Public Services and Procurement Canada (PSPC) terminated two supply contracts with Supermax Healthcare Canada following allegations that nitrile gloves it manufactured in Malaysia for use by Canadian health care workers were made with forced labour.[9] PSPC’s move followed the U.S. Customs and Border Protection (CBP) issuing a withhold release order (WRO) against Supermax Corporation Bhd. and its subsidiaries on October 21, 2021.[10] The WRO was issued based on information that reasonably indicated these companies used forced labour in their manufacturing operations.[11]
Is targeting MNCs enough?
The recent measures proposed in Canada are certainly a step in the right direction to combat modern slavery. We can expect that if and when Bill S-211 becomes law, it will encourage MNCs operating or doing business in Canada to proactively assess the risks of human rights abuses in their global supply chains and to take added measures to ensure that their compliance policies are effective in practice.
In particular, Bill S-211’s requirement that companies make their reports public (backed by hefty fines for reporting false information[12]) should compel MNCs to make substantial changes to their operations as they seek to manage potential reputational risk.
In addition, some of the specific reporting requirements imposed by the proposed bill could require that MNCs take a closer look at the production processes of their suppliers, which could include SME suppliers in emerging markets, and actually work with them to remediate modern slavery concerns. Actions such as those taken by PSPC and CBP against Supermax will certainly give MNCs cause to re-evaluate and redesign their supply chains; these types of measures have immediate economic impacts on MNCs.
Takeaways
It will be interesting to see the extent to which Bill S-211 mitigates the risks of corruption and human rights abuses among SMEs in emerging markets, if and when the proposed law comes into force along with any related regulations and regulator guidance. In the meantime, as companies residing or doing business in Canada gear up to re-evaluate and redesign their operations to meet the proposed measures’ requirements, they should be mindful that such measures may create the illusion of advancing the fight against modern slavery and corruption, while neglecting the systemic barriers that perpetuate corruption and human rights abuses in emerging markets.
[1] Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff, 1st Sess, 44th Parl, 2022 (as passed by the Senate 28 April 2022) [Bill S-211]. See the progress of Bill S-211 here. See the text of Bill S-211 here.
[2] Bill S-211 at ss. 5 and 9.
[3] Bill S-211 at s. 2.
[4] Bill S-211 at s. 10, an entity is controlled by another entity if that entity controls it in any manner, whether directly or indirectly. If an entity is said to control another entity, it will be automatically deemed to control all subsidiaries of that entity, as well as any subsidiaries of those subsidiaries.
[5] Bill S-211 at ss. 6(1) and 11(1).
[6] Bill S-211 at ss. 8 and 13(1).
[7] Customs Tariff, S.C. 1997, c. 36.
[8] Bill S-211 at ss. 26 and 27.
[9] CBC, “Canada terminates $222M PPE contract following forced labour probe” (January 18, 2022). Available online: https://www.cbc.ca/news/politics/malaysia-nitrile-gloves-supermax-contract-terminated-1.6319190
[10] U.S. Customs and Border Protection, “CBP Issues Withhold Release Order on Supermax Corporation Bhd. and its Subsidiaries” (October 20, 2021). Available online: https://www.cbp.gov/newsroom/national-media-release/cbp-issues-withhold-release-order-supermax-corporation-bhd-and-its
[11] U.S. Customs and Border Protection, “CBP Issues Withhold Release Order on Supermax Corporation Bhd. and its Subsidiaries” (October 20, 2021). Available online: https://www.cbp.gov/newsroom/national-media-release/cbp-issues-withhold-release-order-supermax-corporation-bhd-and-its
[12] See Bill S-211 at s. 19(2).
