by Melissa Proctor, Miller Proctor Law PLLC
U.S. importers should be aware that U.S. Customs and Border Protection ("CBP") has begun scrutinizing imported goods suspected of being made with North Korean forced labor, as required by the recently enacted Countering America's Adversaries Through Sanctions Act ("CAATSA"). CBP appears to be focusing on import shipments from areas in China and Russia bordering on North Korea, and has seized several shipments and issued Requests for Information ("CF-28s") to U.S. importers asking for documentation that proves that no forced North Korean labor was involved in the production of the goods. CBP has also been encouraging parties, who have information about the use of North Korean or forced labor, to submit tips via its online eAllegation portal – such parties may be eligible to receive compensation of up to $250,000. Therefore, U.S. importers should take stock of their current corporate social responsibility policies and procedures with respect to prohibiting the use of forced labor, review the CAATSA requirements, and consider implementing the recommendations for enhanced due diligence by CBP, the U.S. Department of Labor Department, and the International Labour Organization.
CAATSA (H.R. 115-44), which was enacted in August 2017, gave expanded authority to CBP to enforce economic sanctions against North Korea and prevent the entry of goods made with North Korean forced labor into the United States. There have been many reports in the media as of late describing how many manufacturers in China and Russia are using North Korean workers to produce their goods, many of which are being exported to the United States. Based on a report by Military.com1, it is estimated that North Korean slave labor (to the tune of approximately 200,000 persons) is being used in over 45 countries around the world, and that the North Korean government earns an estimated $3 billion annually for supplying slave labor to these countries. All of the wages of foreign workers are paid directly to the North Korean government (or to the companies that they control). The average wage actually received by a North Korean worker, which again is payable to the North Korean government, is reportedly around $400 per month; however, the workers themselves only receive roughly 10% to 20% of that amount. North Korea's export of slave labor around in the world is in addition to the forced labor occurring in the numerous prison labor camps inside North Korea.
By way of background, the Foreign Assets Control Regulations (31 C.F.R. Part 500 et seq), which are enforced by the Treasury Department's Office of Foreign Assets Control ("OFAC") have for decades prohibited virtually all dealings by U.S. persons with North Korea, and the U.S. Customs Regulations have also long prohibited imports of North Korean-originating goods into the United States – specifically, imported merchandise that contains any amount of North Korean content. In addition, CBP has also denied entry to goods produced, in whole or in part, by prison, forced, child or indentured labor under the Tariff Act of 1930 (19 U.S.C. Section 1307). The Trade Facilitation and Trade Enforcement Act ("TFTEA"), which was enacted in 2016, further solidified CBP's enforcement authority in this area, allowing CBP to prohibit the entry of imported goods where there is evidence of forced labor. However, the burden of proving that forced labor was involved in the production of imported goods fell squarely on CBP.
CAATSA, however, changed the rules of the game. Now, when forced labor is suspected, the burden of proof now falls on U.S. importers to show by clear and convincing evidence that North Korean forced labor was not used in the manufacture of their goods. If forced labor is suspected, CBP may issue CF-28s and detain the entry of merchandise. If there is evidence of forced labor, CBP may deny entry and seize the imported goods, subject the goods to forfeiture, assess civil penalties, and even refer the issue for a criminal investigation. U.S. importers caught up in violations of CAATSA should also expect to have their future import shipments scrutinized to much a greater degree, such as through increased examinations and detentions, as well as negative publicity.
In response to a CF-28, U.S. importers may be required to submit documents and records that include certificates of origin, supplier certifications stating that no forced labor was used, supplier daily production records (including subcontractor production records), finishing and packing records, employee timecards and wage records, employee lists, purchase orders and delivery documents for raw materials, inputs and components used, inventory records, bills of material, commercial invoices, packing lists, proof of payment, factory visit reports and photographs, inline and final inspection reports, factory utility bills and payments, etc.
To assist U.S. importers in their increased supply chain due diligence efforts, CBP published guidance on its website recommending the adoption of additional internal controls for compliance, and updated its Reasonable Care Checklist. For example, recommended measures include:
Fully understanding the sourcing, manufacturing and finishing processes for their imported goods, identifying all of the companies involved, knowing where such operations are performed, and keeping abreast of the labor conditions in each of the production facilities;
Reviewing the information contained on CBP's website relating to Forced Labor, such as fact sheets and recent investigations conducted by CBP;
Reviewing the U.S. Labor Department's "List of Goods Produced by Child Labor or Forced Labor" and "Reducing Child Labor and Forced Labor Toolkit," as well as the International Labor Organization's ("ILO's") publication "Indicators of Forced Labour," with respect to high-risk countries, high-risk commodities, and red flags;
Performing regular risk assessments and internal audits of their supply chains to confirm that their imported goods are both "forced labor free" and "North Korea free";
Implementing a formal, robust process for vetting foreign suppliers and vendors in high-risk areas, and incorporating prohibitions against the use of forced labor in purchase order terms and conditions, supplier agreements and codes of conduct; and,
Implementing a formal social corporate responsibility compliance program.
U.S. importers are urged to review the CAATSA requirements and the recommendations of CBP, the Labor Department and the ILO for enhanced internal controls and supply chain due diligence, enhance their written agreements with international supply chain partners (e.g., to include strict prohibitions against the use of forced labor, requirements for maintaining records substantiating that no forced labor is used in the production of goods sold to the U.S. company, agreement to submit to internal audits by the U.S. company, etc.), and expand their current internal audit processes to address potential forced labor issues.
Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or email@example.com.
CLICK HERE to return to the DECEMBER 2017 RVCF LINK