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US Securities and Exchange Commission

House Passes Forced Labor Disclosure Bill

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

The House on September 30, 2020, passed a bill that would require public companies to disclose supply chain links to forced labor among China’s persecuted Uyghur population.

H.R. 6270, the Uyghur Forced Labor Disclosure Act, passed on a vote of 253 to 163. The measure is sponsored by Rep. Jennifer Wexton, a Virginia Democrat.

Wexton’s bill comes amid revelations of human rights abuses, including internment and forced labor, by the Chinese government against the predominately Muslim people in its far-west Xinjiang region.

The bill would amend the Securities Exchange Act of 1934 to require public companies that do business in the Xinjiang Uyghur Autonomous Region to disclose whether they engaged with an entity or its affiliate to import “manufactured goods, including electronics, food products, textiles, shoes, and teas” that originated in the region or contained materials sourced from it. For any such materials, the company would need to explain whether they came from a forced labor camp, among other information, according to the bill text.

In floor remarks, Wexton called her bill “a critical and long- overdue human rights disclosure bill that will inform investors and the markets of publicly traded companies’ passive complicity or active exploitation one of the most pressing and ongoing human rights violations in our lifetimes.”

“Shareholders and consumers have the right to know whether their hard-earned dollars are being invested in companies whose supply chains benefit from forced labor,” she said. “It’s critical that publicly traded companies disclose this so that investors have the information that they need to make the best investment decisions possible and to make sure no parts of our market or economy utilize forced labor or are complicit in further violations of human rights.”

The U.S. Chamber of Commerce had urged lawmakers to oppose the measure, invoking the SEC’s conflict minerals rule as a “cautionary tale” in a September 22 letter.

The Chamber, in its letter, said it “strongly condemns human rights abuses, including the persecution and detention of the Uyghur ethnic minority in China.” But the bill, it warned “would prove ineffective and may hinder efforts to prevent human rights abuses.”

The business group pointed to the SEC’s conflict minerals rule under the Dodd-Frank Act as a well-intentioned effort to use U.S. securities law to combat human rights abuses, which “in many cases worsened the situation on the ground in that country.”PL111-203

The SEC’s 2012 rules in Release No. 34-67716Conflict Minerals set out a new reporting regime for companies that source gold, tin, and other minerals from the conflict-ridden Democratic Republic of Congo (DRC) and surrounding countries.

The chamber, in its letter, echoed long-standing Republican and industry criticisms of the conflict minerals rule.

“The absence of a qualified inspection and audit systems made it nearly impossible for companies to ensure accurate disclosures,” the Chamber wrote. “This in turn caused many companies to implement a de facto embargo against material sourced in the region which then hurt legitimate miners. At the same time, the original targets of the provision simply shifted their activities to avoid being impacted.”

In remarks last week on the House floor, Rep. James McGovern, a Massachusetts Democrat and chair of the House Rules Committee, said the comparison between conflict minerals and the Uyghur Forced Labor Disclosure Act “simply doesn’t hold water,” arguing that free enterprise doesn’t exist in the Xinjiang region.

 

This article originally appeared in the October 2, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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