By asking U.S. importers to prove that their supply chains are free of forced labor, the Uyghur Forced Labor Prevention Act (UFLPA) has created heightened nationwide demand for sophisticated supply chain mapping capabilities. Since even trade routes without an obvious nexus to Xinjiang are at risk of forced labor exposure, companies must move beyond supplier disclosures in order to comply with the UFLPA.
Thankfully, public corporate records offer responsible sourcing, procurement, and trade compliance teams enhanced insight into their forced labor risk. By harnessing these resources, Sayari flags both obvious and non-obvious risks. The latter poses a wide range of challenges for supply chain teams.
Below are three different non-obvious risk indicators of forced labor and tips for surfacing them with the help of corporate and trade records.
1. Ownership Relationships
One type of hidden risk you can uncover when conducting supplier due diligence is in ownership relationships. Despite having no immediate risk indicators, a supplier could still pose a risk to your supply chain. Chinese corporate records in Sayari’s platforms can help reveal the ultimate beneficial owners of direct and sub-tier suppliers. For example, they could be owned by a company with ties to Xinjiang or affiliated with a Chinese prison administration bureau. In China, prison administration bureaus can legally own and control companies that otherwise might appear private, so identifying and examining those ownership structures is paramount.
2. Vertical Integration
Ownership relationships can also pose a risk through downstream suppliers. The Chinese government incentivizes companies to establish satellite facilities in Xinjiang in conjunction with internment camps. This makes it important to examine what a supplier owns in order to determine forced labor risk.
Vertical integration is prevalent among Chinese companies, meaning companies increasingly are involved in multiple parts of a supply chain, often through subsidiaries and affiliates. That means that if a company owns a raw materials producer that presents a risk of forced labor – a company in Xinjiang, for example – then that parent company is potentially linked to forced labor as well. And its exported products could include materials mined, in part, in Xinjiang, which falls under UFLPA restrictions.
3. XPCC Affiliation
This next hidden risk involves a specialized organization in Xinjiang that has been directly involved in Uyghur forced labor: the Xinjiang Production and Construction Corps (XPCC). The XPCC is a massive, state-run paramilitary and commercial organization that is central to much of the governance in Xinjiang, which means it’s at the center of a lot of the human rights abuses in the region. It’s an expansive organization that owns private companies through complex networks of direct and indirect ownership. The XPCC is sanctioned by the U.S. so it’s important to be able to identify any affiliated companies for that reason as well.
Many of the companies owned by the XPCC will have “Xinjiang Production and Construction Corps” in its name. Not all of them do, however, so that’s when being able to identify relevant ownership relationships becomes critical. If the XPCC owns a company, it’s also reasonable to treat that owned company as a forced labor risk.
These are just three suggested strategies for screening for hidden forced labor risk in your supply chain. For more tips on utilizing Chinese corporate records and trade records, watch our webinar, Techniques for More Effective Supply Chain Forced Labor Risk Identification.
