September 2024 | Issue #56

The Uyghur Forced Labor Prevention Act

The Department of State estimated that, globally, about 27.6 million people were victims of forced labor, with a significant portion, 5.7 million, residing in the People's Republic of China (PRC)¹. Forced labor, as defined by the Forced Labour Convention of 1930, entails work performed under threat or penalty without voluntary consent. This is the same definition is set forth in 19 U.S.C. § 1307.

The PRC, particularly in the Xinjiang Uyghur Autonomous Region (XUAR), has been implicated in a campaign involving detention, cultural repression, and political indoctrination against Uyghurs and other ethnic minority groups. The PRC coerces ethnic minority groups into industrial labor programs that churn out goods such as cotton, textiles, lithium-ion batteries, and solar cells that are integrated into the global economy. These state-imposed forced labor mobilization programs present an ongoing risk by exploiting vulnerable groups under the guise of alleviating poverty. Individuals subjected to these programs lack free and informed consent and endure discriminatory social control, constant surveillance, the looming threat of detention, abusive working conditions, and excessive overtime².

Prohibiting goods produced by forced labor from entering United States markets and disincentivizing commercial entities from sourcing these products is a priority for the U.S. Government³.

The Uyghur Forced Labor Prevention Act (UFLPA) was enacted on December 23, 2021, and the Forced Labor Enforcement Task Force (FLETF) is tasked with evaluating forced labor schemes, maintaining the UFLPA Entity List, and focusing on enforcement across various sectors.

By enforcing the UFLPA, the U.S. Department of Homeland Security (DHS) plays a pivotal role in the fight against forced labor through two key agencies: Customs and Border Protection (CBP) and Homeland Security Investigations (HSI). CBP operates under the premise that goods mined, produced, or manufactured wholly or in part in the in XUAR or by entities identified by the U.S. government on the UFLPA Entity List, violate 19 U.S.C. § 1307, prohibiting their entrance into United States commerce.

CBP has intercepted an estimated 9,475 shipments valued at over $3.5 billion worth of goods under UFLPA and have denied entry to 3,729 shipments (approximately 39%)⁴. HSI plays a crucial role by leading the DHS Center for Countering Human Trafficking and overseeing the Forced Labor in the Supply Chain section. This specialized section is dedicated to enforcing the ban on importing goods manufactured through forced labor and initiating investigations of those who benefit from forced labor in their supply chains. HSI coordinates referrals for criminal investigations concerning forced labor. In addition, HSI actively pursues leads related to financial crimes, aiming to identify and seize illicit proceeds and target financial networks and third-party facilitators complicit in laundering and concealing illegal financial gains.

By scrutinizing irregular company structures, monitoring financial transactions, and paying attention to discrepancies and unusual transaction routes, anti-money laundering (AML) and financial compliance professionals can uncover suspicious activities that threaten the integrity of the financial system.

Scenarios of UFLPA Violations

Scenario 1: Offsetting Scheme

In a method similar to export-controlled items or sanctions avoidance money laundering schemes, the purchase of goods from an entity on the UFLPA Entity List may involve a manufacturer, supplier, broker, buyer, and an end user in the United States. All parties in the network likely will have otherwise legitimate business dealings in the world of international trade that have nothing to do with goods procured from the XUAR.

In this scenario, the end user may owe the manufacturer or seller for goods related to the XUAR or other prohibited items. However, instead of direct payment, they might arrange for debt satisfaction or provide a credit for future unrelated transactions. These “offsetting” payments obscure the flow of funds related to prohibited items, creating breaks in the financing chain. As a result, mapping the movement of funds throughout the entire network—from manufacturer to end user—becomes challenging.

Scenario 2: Reimportation Scheme

CBP will detain a shipment of goods at the U.S. border believed to be prohibited under the UFLPA. The importer will subsequently choose to export the merchandise to a third country before the merchandise is excluded or seized by CBP. The company will then store the merchandise in a warehouse in that third country for an unspecified period of time. Finally, the company will attempt to reimport the merchandise but list a different country of origin and/or manufacturer and using a different importer of record, aiming to deceive CBP and evade discovery.

Red Flag Indicators

Financial institutions are gatekeepers in the global financial system and must remain vigilant against the potential infiltration of illicit funds stemming from forced labor activities. By adhering to stringent anti money-laundering protocols, conducting thorough due diligence on clients and transactions, and promptly reporting any suspicious activities, financial institutions can play a key role in eradicating forced labor practices and reducing the risk of unwittingly facilitating forced labor-related activities.

1. Company Structures and Behavior: By identifying irregular company structures and suspicious behavior, professionals can detect attempts to obscure the true nature of transactions.
   • Use of shell or front companies registered in jurisdictions known for previous sanctions and/or lax AML controls.
   • Multiple freight forwarders utilizing the same address, or a freight forwarding or trading company listed as the ultimate consignee or end-user.
   • Regular payments for storage facilities in a third country separate from the manufacturer or end user in the United States.
   • A customer with very few clients justifying large amounts of money moving through their business accounts.
   • Transactions involving possible shell companies.

2. Financial Transactions and Payments: Monitoring financial transactions and payments helps in uncovering illicit financial flows.
   • Funds wired to shell companies in jurisdictions with strict bank secrecy laws.
   • Payments exceeding market value or not matching expected quantity.
   • Order or payment made by a third party or entity in a different country than the stated end-use destination.
   • Transaction involving financial institutions with known deficiencies in their AML/CFT controls.

3. Discrepancies in Information and Behavior: Paying attention to inconsistencies in customer information, professionals can identify and uncover illicit trade activity.
   • End-user lacking publicly available or verifiable information expected for a legitimate international trade participant.
   • Inconsistencies in trade documents and financial flows (names, companies, addresses, final destination).
   • Customer activity not aligning with business profile or end user information mismatch.
   • Customer providing vague or incomplete information and resisting additional requests.
   • The address for the customer or counter party is similar to one of the parties found on the UFLPA Entity List

4. Trade Through Unusual Routes: By observing unusual trade routes, professionals can better identify potential illegal trade transactions.
   • Transaction involving individuals or entities in a foreign country known to have connections to, or subsidiaries of, companies on the UFLPA Entity List or subject to Withold Removal Orders (WRO) issued by CBP.
   • Trade finance transaction involves shipment route or goods inconsistent with normal geographic trade patterns.

Report any suspected violations of the UFLPA, money laundering, and illicit financing connected to forced labor to the DHS Center for Countering Human Trafficking at investigations@ccht.dhs.gov.

Footnotes

[1] US Dept of State – Federal Response on Human Trafficking URL; Global Slavery Index. Country Study: Modern slavery in China URL

[2] US Dept of Labor List of Goods Produced by Child Labor or Forced Labor URL; Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the PRC URL

[3] DHS Strategy to Combat Human Trafficking, the Importation of Goods Produced with Forced Labor, and Child Sexual Exploitation URL

[4] CBP Uyghur Forced Labor Prevention Act Statistics URL

HSI encourages the public to report suspected suspicious activity through its toll-free Tip Line at 877-4-HSI-TIP. Callers may remain anonymous.

We’d love to hear your thoughts! Please share your feedback to cornerstone@hsi.dhs.gov.