**London**: New laws across the EU and US compel businesses to rigorously assess supply chains for human rights and environmental compliance, with failure to do so resulting in hefty fines and increased litigation risks. Companies must prepare now to navigate this evolving legal landscape effectively.
As new regulatory frameworks emerge across major jurisdictions, companies are being urged to conduct thorough examinations of their supply chains to identify and mitigate legal vulnerabilities associated with human rights and environmental standards. This comprehensive assessment is becoming increasingly important in light of various legal changes aimed at ensuring compliance with import controls and national security regulations.
In the European Union, three new laws are poised to impact a wide range of businesses, including many non-EU multinationals. These laws set forth extensive requirements regarding due diligence in understanding both upstream and downstream supply chain activities, particularly in relation to human rights and environmental sustainability. A significant component of this legal shift is the Corporate Sustainability Due Diligence Directive (CS3D), which mandates that companies take a detailed inventory of their supply chains to address potential adverse impacts. This directive will come into effect in 2027, necessitating preparations from affected businesses now, as reported by JD Supra.
In the United States, companies face additional challenges stemming from import and export laws concerning forced labour, particularly as they pertain to materials sourced from China. The Uyghur Forced Labor Prevention Act, enacted in 2021, creates a rebuttable presumption that all goods from China’s Xinjiang Uyghur Autonomous Region involve forced labour. This law has prompted companies to engage proactively with their suppliers, mapping supply chains to ensure compliance and prevent potential seizures of shipments.
The recent proliferation of laws governing supply chains not only carries the possibility of heavy fines for non-compliance but also opens the door to private lawsuits. In the EU, the CS3D authorizes private individuals and organisations to sue companies for failing to perform adequate due diligence on their supply chain operations. This trend towards increased litigation is reinforced by the fact that national authorities will have the power to impose significant penalties, potentially up to 5% of a company’s global turnover.
Moreover, the landscape of legal obligations is evolving globally, with countries like Australia, Canada, Mexico, and the United Kingdom also introducing measures that mandate greater oversight of supply chains. Contingent upon these developments, multinationals will have to navigate a complex web of differing legal frameworks relating to their supply chain practices.
The enforcement mechanisms behind these laws have also become more stringent, evident in the United States where shipments suspected of being associated with forced labour face extensive scrutiny. U.S. Customs and Border Protection has reportedly detained thousands of shipments under the Uyghur Forced Labor Prevention Act, with a significant proportion originating from southeast Asian countries like Malaysia and Vietnam.
Legal analysts suggest that implementing robust programmes to ensure compliance will provide firms with a clearer understanding of their supply chains and may reveal hidden risks. Nevertheless, failure to adequately address these new legal considerations can lead not only to financial penalties but also reputational damage, which may impact long-term shareholder value.
The growing scrutiny surrounding supply chain practices places additional pressure on companies, especially those already implicated in controversies related to modern slavery or forced labour allegations. As regulatory environments become more complex, businesses are advised to prioritise due diligence to mitigate potential liabilities stemming from their supply chain activities.
Source: Noah Wire Services
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