Issues in Brief

Could Sex Kill Your Business?

Vice President, General Counsel and Secretary
August 12, 2013

Are the off-duty sexual activities of your employees part of your enterprise risk analysis? If not, they probably should be. Sex is a big business and its illicit progeny—sex slavery and human trafficking—are rapidly growing as well. One strategy to stop these atrocities is to dry up the customer base, which governments are attempting to accomplish by holding companies legally and financially accountable for employees' sexual activities.

Under existing U.S. regulations, a company can be held liable for an employee's engagement in a "commercial sex act"—even if the act is legal in the jurisdiction in which it occurred, and even if the employee was off-duty at the time.

Are you calling your compliance officer and reviewing your zero tolerance policies yet?

The Startling Scope of the Problem
The sex slavery and human trafficking "industries" are giant multinational businesses. They generate large revenues for "owners" while causing extraordinary suffering for their victims, all the while feeding off the appetites of complicit customers. In 2008, the United Nations' International Labour Organization (ILO) projected that these industries generate $32 billion in profits annually, with more than 12.3 million forced labor victims (including 2.4 million trafficked persons) existing at any given time in more than 130 countries. In 2012, the White House estimated that there are 20 million trafficking victims worldwide.

Under federal and international definitions, human trafficking is a broad term that covers sexual trafficking, labor trafficking, sexual slavery, and child labor/soldiers. It encompasses commercial sex acts, forced labor, involuntary servitude, and other crimes, and doesn't necessarily include forced travel, the crossing of borders, or smuggling foreign nationals. The scourge of trafficking is not limited to a certain geography or economic sphere; traffickers operate in the slums of India, the streets of Rio, and even the suburbs of Connecticut. Its victims are young and old, male and female, children and adults.

Human Trafficking's Link to Manufacturers
What does this have to do with manufacturers, who aren't in the business of trafficking, who would never engage in such practices, and who may even have policies against these crimes?

Even the most ethical companies, those who long ago perfected the art of outing bribe-payers, thwarting terrorists, and combating other criminals throughout their supply chains, may be harboring human traffickers among their ranks. The trouble is that human trafficking is generally a low-risk, high-reward endeavor, one that hangs in the shadows of legitimate communities and industries. Understanding the risks, particularly the legal ramifications of getting caught in the middle, is critical for manufacturers.

The Web of Human Trafficking Laws
A large web of interconnected laws, policies, and regulations in the U.S. and abroad are aimed at stopping human trafficking. Any one of these laws or regulations could have dire consequences for manufacturers—particularly those that rely heavily on U.S. federal contracts.

Since 2000, U.S. and international entities have stepped up their efforts to combat these crimes. In the U.S., human trafficking is a federal crime under the Trafficking Victims Protection Act of 2000 (TVPA), amended most recently under the 2013 reauthorization of the Violence Against Women Act. While definitions of trafficking vary, they are all substantially similar to that included in the TVPA:

  • (A) sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or
  • (B) the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery.

Violators can face criminal prosecution and jail time.

On a more practical level, however, the U.S. leverages its considerable buying power to impose strict anti-trafficking requirements on government contractors and subcontractors. Efforts are concentrated via two primary channels: (1) focusing on Defense Department contractors through the Department of Defense Federal Acquisition Regulations, Subpart 22.17, Combating Trafficking in Persons; and (2) targeting all federal contractors under Executive Order No. 13627, Strengthening Protections Against Trafficking in Persons in Federal Contracts, issued by the president in September 2012.

DFAR Subpart 22.17Combating Trafficking in Persons
These regulations apply to all DOD acquisitions and require federal defense contractors and subcontractors to abide by a strict no tolerance policy for human trafficking. Specifically, contractors, subcontractors, and their employees are prohibited from "engaging in severe forms of trafficking," "procuring commercial sex acts," and "using forced labor." Any violations could result in immediate termination of existing contracts and debarment from future government contracts. The policy requires prime contractors to include this DOD-specific language in all of their subcontracts for further accountability.

Executive Order No. 13627Strengthening Protections Against Trafficking in Persons in Federal Contracts
Basically, this order extends the DOD prohibitions to all federal contractors. It further prohibits fraudulent recruitment practices, confiscation or destruction of identification documents, and employee recruitment fees. Much like the anti-bribery Foreign Corrupt Practices Act, the order imposes transparency requirements to allow the government to audit books and records, and requires companies to report any potential problems. Violators risk immediate terminations of contracts and debarment from all future contracts.

State Laws
States have passed myriad laws aimed at curbing human trafficking. Most notable is the California Transparency in Supply Chains Act, which went into effect January 1, 2012. This law applies to almost any manufacturer who does business in or through California, and requires companies to disclose their policies and efforts to eradicate slavery and human trafficking from their supply chains. Several states have adopted similar laws, although penalties vary.

As a practical matter, the sum of all these laws and regulations means that sex really could kill your business. Particularly if your business relies heavily on federal contract dollars. Businesses that aren't federal contractors are still subject to state laws, which could easily be extended to apply to all companies. Current policies have the effect of holding companies accountable for the actions of an employee, even if the action is technically legal in the jurisdiction in which it occurs and if the employee is off-duty at the time. The sexual proclivities of your employees and subcontractors need not paralyze or destroy your entire enterprise, however, if you take a holistic approach to the problem.

Proactive Steps
Amending your list of zero tolerance policies is a good first step. To be proactive, adopt a comprehensive approach to address human trafficking. Start with education about the problem, how the industry operates, and the ramifications; the National Human Trafficking Resource Center provides a wealth of information. Complete a risk assessment, too: considerations may include the countries business is conducted in, the extent of reliance on U.S. government contracts, and the location of companies in the supply chain. Companies should perform due diligence, especially on their highest-risk locations, areas, suppliers, and programs, to identify any existing or high-potential problems. Review or draft corporate policies on human trafficking, and make them public. Using the corporate policy as a guide, prepare training materials to educate the workforce and suppliers on the dangers of human traffickingfor themselves and for the company. Consider including information to help employees recognize signs of human trafficking, and make sure to publicize a hotline or website where employees can alert the company to possible problems.

Sex does not have to kill your business. Companies should exert a good faith effort to combat human trafficking, reduce enterprise risk, and ensure business continuity with corporate awareness, planning, and training.

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