As a wave of new sustainability legislation comes into force in Europe, luxury brands are increasingly required to implement and report on the steps that they take to ensure that their supply chain is free from forced labour. For some commodities, this is proving to be difficult, if not impossible. What’s more, in light of a recent judgment from the English courts, companies importing high-risk commodities are now at risk of criminal investigation and prosecution in the UK.

The Xinjiang issue

Xinjiang is renowned for its cotton production, which is believed to account for around 85% of China’s production and 20% of global cotton supply. As such, the cotton produced in Xinjiang may be found in a wide variety of fashion goods. However, Xinjiang is an area of China that is known for something else: forced labour.

Tackling forced labour in Xinjiang has been gaining momentum in recent years. The G7 summit in 2021, for instance, resulted in a joint communique committing to ensure that global supply chains are free from the use of forced labour. The communique specifically expresses concern about “state-sponsored forced labour of vulnerable groups and minorities, including in the agricultural, solar and garment sectors” and, while the communique does not mention Xinjiang, in a separate statement issued by the White House, these same sectors were identified as “the main supply chains of concern in Xinjiang”.  

Since then, initiatives have been pushed in several countries to specifically address the Xinjiang issue. At the close of 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA) that established a “rebuttable presumption” that all goods produced, wholly or in part, in the Xinjiang Uyghur Autonomous Region are made with forced labour and, thus, are not entitled to entry into the commerce of the United States.  

On 31 August 2022, the UN Office of the High Commissioner for Human Rights (OHCHR) published its long-awaited Assessment of Human Rights Concerns in the Xinjiang Uyghur Autonomous Region, China. The assessment contains findings on two specific issues that are likely to be of particular significance for international businesses with supply chains that may have inputs from Xinjiang, (and from China more broadly):

1. The OHCHR reports indications that labour and employment schemes, in particular those linked to the VETC (vocational education and training centres) system and the transfer of “surplus labour”, appear to be discriminatory and involve elements of coercion. It endorses concerns previously expressed by the International Labour Organisation, including in relation to “coercive measures” and the relocation or transfer of “surplus” workers under security escort and menace of penalty. These findings give rise to serious and credible indications of forced labour and human trafficking related to Xinjiang. Consistent with businesses’ responsibility to respect human rights according to applicable international standards, this may trigger a requirement for businesses with supply chains in the region (including at tier-two and beyond), to conduct enhanced human rights due diligence on these issues.  
2. The OHCHR also reports credible threats of reprisals against staff employed by, or conducting activities on behalf of, foreign enterprises seeking to carry out supply chain due diligence in Xinjiang. This confirms what a number of businesses and certification bodies have known for some time – it is extremely difficult, if not impossible, to carry out human rights due diligence related to Xinjiang. 

As such, the pressure has been growing on businesses to ensure they are not engaged in unethical supply chains, with scrutiny mounting from stakeholders, employees, investors, financiers and customers. While this has largely been focused on reputational risk, a recent ruling in the UK adds a significant new dimension: the prospect of criminal investigations and/or civil recovery proceedings by UK authorities.

Shifting focus

On 27 June 2024, the UK Court of Appeal issued a judgment in the case of R (on the application of World Uyghur Congress) v National Crime Agency. The case stems back to April 2020, when the WUC sent evidence to the NCA of forced labour abuses occurring in Xinjiang. The NCA refused to look into the evidence, claiming that it was only required to undertake an investigation if a specific shipment of cotton had been identified as the proceeds of crime. The NCA added that once someone in the supply chain had paid “adequate consideration” (i.e. market value) for the product, it could no longer be criminal property, per the exemption in section 329(2)(c) of the Proceeds of Crime Act 2002 (POCA).

The WUC requested a judicial review into the NCA’s decision not to launch an investigation. The request was denied at first instance and was appealed to the Court of Appeal. The Court of Appeal sided with the WUC, stating that it was accepted that there was “a diverse, substantial and growing body of evidence” that large-scale human rights abuses were occurring in Xinjiang. 

The Court of Appeal held that the NCA had erred in law in two fundamental respects:

1. It is unnecessary to identify specific criminal property and conduct (i.e. a specific consignment of cotton produced by forced labour) before determining that there can be a proper basis for an investigation under POCA. Such an understanding could discourage the NCA and other investigative bodies from commencing investigations, including in relation to corruption, in the absence of concrete evidence of particular crimes carried out by particular persons. 
2. The payment of adequate consideration at some point in the supply chain does not deny a shipment of cotton produced by forced labour its criminal character. A purchaser or importer who suspects that goods are the product of forced labour or other serious human rights abuses would therefore not be able to rely on the “adequate consideration” exemption under POCA. 

“Criminal property” is defined in section 340 of POCA as any benefit derived from criminal conduct, or any property representing the same. Any proceeds relating to the sale of cotton (or other products) created through forced labour will therefore fall within that definition. A person commits an offence under POCA if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person. While “knowledge” is unlikely to be met in the majority of supply chain cases, the threshold for suspicion is much lower. Given the widespread and authoritative coverage of forced labour in Xinjiang’s cotton industry, it is quite feasible that a company sourcing cotton from that region could be said to meet this threshold. 

While the UK does not have any laws that ban the importation of goods made using forced labour, there is a provision under POCA that individuals and entities can be pursued for money laundering offences, which was further enhanced by the Economic Crime and Corporate Transparency Act 2023, in which a company can be held accountable should a senior manager commit that offence. 

In short, the ruling confirms that any entity that imports or sells products in the UK, knowing or suspecting that forced labour has occurred, is at risk of a criminal investigation and prosecution, and/or civil recovery proceedings, by UK authorities. 

Luxury brands and any other companies exposed to such supply chains should urgently re-assess the position and their related compliance programmes and seek advice on how to mitigate these risks.

Sir Max Hill is a senior counsel and policy advisor at King & Spalding, focusing on special matters and government investigations. Aaron Stephens is a partner in the firm’s special matters and government investigations practice. Peter Hood is a counsel at King & Spalding specialising in public international law, ESG, sanctions and business and human rights.