BIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYOctober 8-9, 2012

Crowne Plaza, Foster City, CA

California Transparency in Supply Chain Act, SB 657,

Chapter 556, Statutes of 2010

David GonzalezOf CounselDLA PiperDavid.Gonzalez@DLAPiper.com

Background to the introduction of SB 657

• October 2007, DOJ releases report, “Human Trafficking in California.”

• SB 657 was in response to one of the Reports findings that, “California bears a moral responsibility to exert leadership, through government and business purchasing practices, to implement and monitor codes of conduct assuring fair and human labor practices throughout their supply chain.”

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Background to the introduction of SB 657

• That Report’s finding was tied to this specific recommendation, “California industries should establish a code of conduct based on relevant portions of the Social Accountability 8000 Standard that forbid human-trafficking related abuses, or other standards such as those included in Public Contract Code 6108 (g), that assure workers’ rights throughout their own operations and in those of their suppliers and labor contractors. They should use an external organization to monitor compliance and make the results public. “

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Background to the introduction of SB 657

• Report cites Levi Strauss as “one of the first multi-national corporations to create its own code of conduct regarding workers’ rights and labor conditions…”

• Report states that some, “corporations have chosen to use major, internationally recognized codes of conduct for labor practices, such as the Social Accountability (SA) 8000 Standard…”

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• “(a) (1). Every retail seller and manufacturer doing business in the state and having annual worldwide gross receipts that exceed $100,000,000 shall disclose, as set forth in subdivision (c), its efforts to eradicate slavery and human trafficking from its direct supply chain for tangible goods offered for sale.”

• Effective date is January 1, 2012.

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Major Provisions of SB 657Who must disclose

Major Provisions of SB 657What must be disclosed

• “(c). The disclosure… shall, at a minimum, disclose to what extent, if any, that the retail seller or manufacturer does each of the following:– (1) Engages in verification of product supply

chains to evaluate and address risks of human trafficking and slavery. The disclosure shall specify if the verification was not conducted by a third party.

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Major Provisions of SB 657What must be disclosed

• (2) Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure shall specify if the verification was not an independent, unannounced audit.

• (3)Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.

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Major Provisions of SB 657What must be disclosed

• (4) Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.

• (5) Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chain of products.”

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Major Provisions of SB 657How it must be disclosed

• “(b) The disclosure shall … be posted on the retail seller or manufacturer’s Internet Web site with a conspicuous and easily understood link to the required information placed on the business’ homepage.” (If retailer has no website, written notice must be provided within 30 days of a request.)

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Major Provisions of SB 657Key definitions

• “Doing business in the state” = “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” (Rev & Tax Code Sec. 23101.)

• “Manufacturer” = “a business entity with manufacturing as its principal business activity code…”

• “Retail seller” = “a business entity with retail trade as its principal business activity code…”

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Major Provisions of SB 657Enforcement

• “exclusive remedy for a violation of this section shall be an action brought by the Attorney General for injunctive relief. Nothing in this section shall limit remedies available for a violation of any other state or federal law.”

• According to the main page of the Attorney General’s Web site, the A.G. is “making the fight against human trafficking a priority for the California Department of Justice.

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Major Provisions of SB 657Identification of who must report

• “the Franchise Tax Board shall make available to the Attorney General a list of retail sellers and manufacturers required to disclose efforts to eradicate slavery and human trafficking…” (the list is based on tax returns)

• List is to be provided annually to the Attorney General.

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Summary of SB 657

• Entities doing business in CA with worldwide sales in excess of $100 million, must make 5 specified disclosures.

• These disclosures relate to whether the entity does, or does not, engage in the specified activities relating to the reduction/elimination of slavery/trafficking in their supply chains.

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Summary of SB 657

• These disclosures relate to:– Verification of risk of product supply chains;– Auditing of suppliers for compliance with company

standards;– Requiring direct suppliers to certify compliance with

slavery/trafficking laws;– Internal accountability standards for failure to meet

company standards;– training for supply chain management.

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Summary of SB 657

• 5 disclosures are to be posted on the entities Web site with a “conspicuous and easily understood” link.

• Enforcement by injunction through the A.G..

• Took effect January 1, 2012.

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Many open questions re: SB 657

• Liability?

• Unclear terms and definitions (e.g. “conspicuous and easily understood,” “verification,” “direct suppliers.”

• Lack of compliance guidance.

• Scope of “supply chain” undefined.

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Questions?

Thanks!

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