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ALL ABOUT California Transparency in Supply Chains Act


California Transparency in Supply Chains Act short version CTSCA is a groundbreaking legislation that has been enacted in 2010. The act mainly focuses on modern slavery and human trafficking in supply chains and aims mostly at companies, ensuring transparency to their consumers. Since then, similar legislation has been passed in Europe. To give a few examples; German Supply Chain Due Diligence Act, Norway Transparency Act, and UK Modern Slavery Act has been enacted in the following years.

To understand what the act is all about, the concepts of "Human Trafficking" and "Modern Slavery" should be explained.


1- What is "Modern Slavery" and "Human Trafficking" ?


The Anti-Slavery International has defined "Modern Slavery" as: "We define modern slavery as when an individual is exploited by others, for personal or commercial gain." on their website.


Within the scope of CTSCA, the modern slavery concept is used for commercial gain. U.S. Department of State has explained on its website that modern slavery could appear in many forms. Within the scope of CTSCA, modern slavery is mostly in the form of forced labor.


Forced labor, sometimes referred to as "labor trafficking" is a range of activities such as hiring, transporting, providing, obtaining, or harboring involved when an individual uses force, abuse, or other coercive means to compel someone to work, mostly without fair compensation. Once a person’s labor is exploited by such means, the person’s prior consent to work for an employer is legally irrelevant: the employer is a trafficker, and the employee is a trafficking victim. Migrants are particularly vulnerable to this form of human trafficking, but individuals also may be forced into labor in their own countries. Female victims of forced or bonded labor, especially women and girls in domestic servitude, are often sexually abused or exploited as well.


Forced Labor could also appear in the form of "Forced Child Labor". Although children can be a part of the workforce under regulations, children are easier to exploit and can be found appearing in slavery circumstances. There are certain indicators of Forced Child Labor where a child is in situations where the child appears to be in the custody of a non-family member who requires the child to perform work that financially benefits someone outside the child’s family and does not offer the child the option of leaving, such as forced begging.


According to International Labour Organization, by the time of September 2022, 50 Million people worldwide are in modern slavery. 86% of the cases are found within the private sector. Forced labor in sectors other than commercial sexual exploitation accounts for 63%of all forced labor, while forced commercial sexual exploitation represents 23% of all forced labor. Almost four out of five of those in forced commercial sexual exploitation are women or girls. 3.3 million children are in forced labor and more than half of that number is in commercial sexual exploitation.


"Human Trafficking"


U.S. Department of Justice defines Human Trafficking as "Human trafficking, also known as trafficking in persons, is a crime that involves compelling or coercing a person to provide labor or services, or to engage in commercial sex acts. The coercion can be subtle or overt, physical or psychological. The exploitation of a minor for commercial sex is human trafficking, regardless of whether any form of force, fraud, or coercion was used."

An estimated 27.6 million are currently victims of trafficking worldwide. Human trafficking is where most of the traffickers use psychological means of control such as deceiving, defrauding, manipulating, or threatening individuals into providing exploitative labor or commercial sex.


2- Background of CTSCA



The stimulus behind the Transparency in Supply Chains Act was that Californians lacked access to information on human trafficking and modern slavery used to produce the goods they purchased. Therefore, they could not make well-informed decisions about the products they bought. Many consumers were blindly complicit in funding modern slavery and human trafficking crimes.

Therefore California enacted this particular act to provide consumers with visibility into the businesses they purchase from and support. The Act provides the consumer an option to consider to whether support businesses that are actively working to eradicate modern slavery and/or human trafficking or not.

CTSCA is a groundbreaking piece of legislation that has led the way for other governmental authorities to provide visibility to the consumers within their area of legislation and provide an ethical foundation for "Clean-Commerce" practices.

CTSCA also intends to educate consumers on how to carry out their commercial purchases responsibly from companies that responsibly manage their supply chains by limiting the use of forced labor and provide similar information to investors interested in socially responsible companies.


3- Businesses That Are Subject to CTSCA


CTSCA does not exclusively apply to businesses that are physically located in the State of California. The Act also applies to businesses that declare themselves as "retailers" or "manufacturers" in their tax declarations.


For a business to be obliged to fulfill CTSCA requirements, the business shall do business in California with annual gross revenue exceeding $100,000. A "Retailer" is a business with retail trade as its business activity code is reported on the businesses' tax returns.

A "Manufacturer" is a business entity with manufacturing as its business activity code is reported on the businesses' tax returns. "Doing Business in California" would mean where a company is organized and commercially domiciled in California; its sales in California exceed the lesser of $500,000 or 25 percent of the company’s total sales; its real property and tangible personal property in California exceeds the lesser of $50,000 or 25 percent of the company’s real property and tangible personal property; or its amounts paid in California for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company. “Gross receipts” means the gross amounts realized on the sale or exchange of property, the performance of services, or the use of property or capital in a transaction that produces business income in which the income, gain, or loss is recognized under the Internal Revenue Code.


4-Compliance With the Act





Compliance with The Act is solemnly easier. Certain disclosures shall be made on businesses' websites on or before January 1st, 2012 with a notice.

Eligible retailers and manufacturers must publish annual reports detailing their efforts to eradicate human trafficking and modern slavery in their direct supply chains. The disclosures must include the company’s efforts in the following areas:


  1. Verification: Evaluating and addressing risks of human trafficking and modern slavery within a product’s supply chain.

  2. Audits: Conducting supplier audits to evaluate compliance with the company’s standards on human trafficking and modern slavery.

  3. Certification: Direct suppliers certifying that the creation of a product complies with human trafficking and modern slavery laws of the US and the country of the direct supplier.

  4. Internal accountability: Establishing internal standards and procedures for employees and contractors who fail to meet company standards on human trafficking and modern slavery.

  5. Training: Providing human trafficking and modern slavery training for employees that oversee supply chain management.


5- Non-Compliance With the Act


CTSCA is enforced by CFTB ("California Franchise Tax Board") and the California Attorney-General's Office. At the end of the tax year, the Tax Board compiles a list of businesses that are engaged primarily in manufacturing or retail trade, and have gross receipts of $100 million or more. This list is sent to the Attorney-General’s Office, which reviews each company’s website and determines whether it is in compliance with the CTSCA. The exclusive sanction available to the Attorney-General to use in response to violations of the CTSCA is an action for injunctive relief. The CTSCA does not create a private right of action (Luxton 2011).


The CTSCA does not impose a direct penalty for non-compliance but allows for an injunction by the California Attorney-general to correct corporate behavior (Gonzalez Marcos 2011). An injunction or the mere threat thereof may affect the reputation of a retailer or manufacturer and therefore be an effective incentive for complying with the CTSCA.   In addition, the CTSCA will indirectly prompt companies to enhance clauses in supply contracts, ultimately leading to greater protection for companies from liability caused by the behavior of their suppliers. In this situation, it is advisable to refer explicitly, in disclaimers of liability clauses of supply agreements, to the company’s policies, procedures, and standards regarding the provenance of a product, especially with regard to slavery and human trafficking. Companies that cannot account for the provenance of their products may soon find themselves losing competitiveness to companies that can. They may also be exposed to costly litigation. 


6- Final Thoughts


In conclusion, the California Transparency in Supply Chain Act (CTSCA) has played a vital role in promoting transparency and ethical practices within supply chains operating in California. Throughout this brief, we have examined the key components and implications of the CTSCA, shedding light on its significance in combatting human trafficking and modern-day slavery.


The CTSCA has prompted companies to assess their supply chains and take proactive measures to ensure transparency. By requiring certain businesses to disclose their efforts in eradicating slavery and human trafficking, the CTSCA has empowered consumers to make more informed purchasing decisions and support companies that prioritize ethical practices.


The act's emphasis on disclosure and transparency has also encouraged businesses to implement robust due diligence processes. Companies are increasingly scrutinizing their supply chains, engaging in risk assessments, and implementing responsible sourcing practices. These actions not only reduce the risk of human rights abuses but also promote a culture of social responsibility.


While the CTSCA has undoubtedly had a positive impact, it is important to recognize that eradicating human trafficking and slavery remains an ongoing global challenge. Continued collaboration between governments, businesses, and civil society organizations is crucial to strengthen supply chain transparency efforts and combat these egregious violations of human rights.


Furthermore, it is essential for the CTSCA to adapt and evolve alongside emerging trends and challenges in supply chain management. As technologies and global dynamics change, the act must remain responsive to new risks and incorporate effective mechanisms to address them.


In conclusion, the CTSCA has been instrumental in promoting transparency and combatting human trafficking and slavery within supply chains operating in California. Through its disclosure requirements, the act has empowered consumers, encouraged responsible business practices, and contributed to the broader global effort of eliminating human rights abuses from supply chains. However, the fight against modern-day slavery is far from over, necessitating ongoing collaboration and vigilance to ensure a more ethical and transparent future for supply chains worldwide.

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