Understanding CTPAT Social Compliance Policies

U.S. Customs estimates there are over 40 million enslaved people in the world today, and approximately 25 million of them are being forced into labor. The figure is staggering – in fact, it’s enough to fill over 1,300 sold-out baseball stadiums. It is therefore unsurprising that a new point of emphasis for CBP is to ensure the U.S. does everything it can from a trade perspective to prevent countries and regions around the world from causing people personal and financial harm. This is why Customs and Border Protection implemented the new CTPAT Social Compliance requirements fighting back against criminal activity including forced labor, terrorism, theft, and bribery. In this article, we outline the components of the Social Compliance policy, ways to spot illegal activity, and tips for ensuring your Business Partners and vendors are operating above board.

There are several types of illegal activity that CBP requires every CTPAT member to address in their Social Compliance procedures. Below is a brief overview of each area and what it entails.

Note: Since Money Laundering can be particularly hard to spot, we’ve included some additional tips on how to identify it.

CTPAT SOCIAL COMPLIANCE VIOLATIONS

Forced Labor:

Suppliers and their supply chain partners MUST NOT utilize any type of forced labor or child labor in the production of products purchased. Suppliers must have an active policy prohibiting the use of forced and child labor within their organization.

Bribery or Collusion:

Business Partners must not give or receive a financial or other advantage in connection with the “improper performance” of a position of trust, or a function that is expected to be performed impartially or in good faith.

Terrorism or Terrorism Funding:

Business Partners may never funnel activity, revenue, or profits into an organization intended to cause death or serious bodily harm to civilians or non-combatants with the purpose of intimidating a population or government.

Theft:

An Employee or Business Partner may never participate in the act of stealing specifically, the taking and removing of property with intent to deprive the rightful owner of it, or an unlawful taking as by embezzlement or burglary of property.

Money Laundering:

Money Laundering is a vehicle to fund terrorism and organized crime. Train your employees and encourage Business Partners to be aware of these common warning signs. The following are some of the more prominent red flags:

1. There is a reluctance or refusal on the part of the customer to give information, such as where the product is going.
2. The products requested do not fit with the company’s consistent line of business.
3. The product is incompatible with the purported shipping destination.
4. The shipping route is abnormal.
5. The final destination for the product is a freight-forwarding business.
6. Customers prefer to pay cash even if they qualify for open credit terms.
7. The customer’s suggested payment method is inconsistent with the risk characteristics of the transaction.
8. The transaction involves payments by cash, check, wire transfer, postal money orders, etc. from a third party with no obvious connection with the transaction.
9. Significant discrepancies in description, value, quality or quantity of goods are apparent on official documents (invoices, bills of lading, etc.).
10. Numerous sole proprietorships or private limited companies are controlled by the same group of people.

TIPS FOR VETTING BUSINESS PARTNERS & VENDORS

A proactive way to ensure Business Partners are not committing any of these acts is to dedicate a portion of your in-person audit or Security Questionnaire to addressing them. For instance, asking vendors targeted questions is a good start to vetting out any illegal activities. A couple examples of these types of questions include:

• Does your company have policies and procedures in place to combat money laundering, terrorist financing, theft, and human slavery? (Yes/No)
• Is bribery, money laundering, and human trafficking/slavery strictly forbidden by your management team at every level? (Yes/No)

Another way to confirm your Business Partners (and employees) are doing the right thing is to make them sign an affidavit stating that they are actively combating these issues by complying with CTPAT policies. Make sure the documents are either physically signed or endorsed electronically using Veroot’s CTPAT automation software or a similar system. We also recommend renewing this agreement on an annual basis to underscore its importance. Below are some examples of statements to include in a Social Compliance affidavit:

• Your company takes a proactive approach to safeguarding human rights within our supply chain.
• You company is committed to upholding Section 307 of the Tariff Act of 1930 (19 U.S.C. §1307) Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor – including forced child labor. Such merchandise is subject to exclusion and/or seizure, and may lead to criminal investigation of the importer or shipper.
• Suppliers and their supply chain partners MUST NOT utilize any type of forced labor or child labor in the production of products purchased or shipped by your Company. Suppliers must have an active policy prohibiting the use of forced and child labor within their organization.
• You must not launder money through your Company.
• You must also not take or give bribes.
• You must not sponsor terrorism.
• You must not participate in or enable theft whether physical goods, digital goods, or intellectual property.
• Please acknowledge that you have received and understand the information regarding our social compliance responsibilities.

CTPAT SOCIAL COMPLIANCE SUMMARY

In the United States, Customs and Border Protection has detained nearly 700 shipments for actions related to forced labor and modern slavery during the 2021 fiscal year alone. It is estimated that about $100 million in imported electronic goods and $50 million in imported clothing is produced using illegal labor practices.

Our hope – and CBP’s – is that if every CTPAT member company bands together, we can put policies in place to combat these travesties that plague our world. Each action we take to punish bad actors against these moral injustices will slowly put these issues into focus and encourage the world to truly make change. If you do find a company or Business Partner operating in violation of any of the Social Compliance regulations outlined about, immediately terminate the relationship and consider reporting them directly to U.S. Customs by calling 1-800-BE-ALERT.

We hope this information helps point you in the right direction as you build out a CTPAT Social Compliance process. However, if you find yourself in search of additional help with this or any other CTPAT procedures, Veroot is here to help. Simply fill out a form below to start the conversation or visit the  CTPAT page on our website.