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Canadian “Forced Labour" Rules Catch US Businesses!

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Are you a U.S. based business distributing goods in Canada?

If you have over $20 M in assets or $40 M in revenues, you are likely caught by Canada’s new “child and forced labour” rules and need to deal with this or risk $250,000 in fines!

If that is concerning, keep reading!

Quick Overview

Canada is in the process of legislating new comprehensive Annual Reporting rules about the risks of child and forced labour in supply chains. The rules are expected to apply to MOST large Canadian corporations, and MANY large US businesses – even those with a minimal nexus to Canada. Penalties for non-compliance can reach $250,000 and can be imposed on directors, officers, and agents.

The rules will capture businesses that meet both the “size” and “nexus” tests.The “size” test is any two of the following: (1) $20 M in assets; (2) $40 M annual revenue; or (3) at least 250 employees. The “nexus” test is any one of the following: (1) distributing goods in Canada; (2) importing goods into Canada; (3) carrying on business in Canada; or (4) place of business in Canada. This will catch a lot of our clients.

More Detail: Bill S-211 / New Canadian Legislation

With increased scrutiny and political pressure to take a stanceagainst child and forced labour in supply chains – especially since revelations about labour issues in the Xinjiang region of China – Canada is taking steps similar to the United States’ approach with the Uyghur Forced Labor Prevention Act (UFLPA).

Canada’s answer is Bill S-211, which will enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Forced Labour Act” or “FLA”).

In a nutshell, the FLA will require most large Canadian corporations and many US corporations (even with minimal nexus to Canada) to file comprehensive Annual Reports outlining child and forced labour risks in their supply chains.

The Annual Report must detail steps taken to “prevent and reduce the risk” that child and forced labour is used “at any step of the production of goods” and include a whole host of other information.

Companies that fail to comply can face criminal charges, and so can their directors, officers, or agents if authorizing or even “acquiescing” to the lack of compliance. Associated fines can reach $250,000.

Somewhat alarmingly, the new FLA will also include extensive search and seizure powers allowing government agents to enter offices and search and seize without warrant! (Whether this is constitutional is yet to be seen.)

Import Bans

The FLA will also prohibit goods produced in child or other forced labour conditions from import to Canada. (Another bill currently in process, Bill S-204, will directly prohibit imports from the Xinjiang region in China.)

Best Practices

Canadian and US companies doing business in Canada need to prepare for these new rules.   While the FLA will only come into effect January 1, 2024 at the earliest, there is no better time than the present to start addressing these supply chain risks.

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