U.K. Companies Trading In Forced Labor Goods Risk Prosecution

End of June 2024, the Global Legal Action Network (GLAN), a non-profit organization that pursues innovative legal actions across borders, and the World Uyghur Congress (WUC), a non-government organization representing the collective interest of the Uyghur people, won a case that will affect all U.K. companies trading with China. Their initiated legal action challenged the decision of the National Crime Agency (NCA), a national law enforcement agency in the United Kingdom, which refused to investigate Uyghur forced labor cotton imported from China. The Court of Appeal pronounced such a refusal to be unlawful. The judgment will have massive consequences for high street retail giants trading and importing goods that may be tainted in forced labor, confirming they are now exposed to legal risk. If a company knows or suspects that the imported goods were produced in criminal circumstances – such as through forced Uyghur labor – they could be prosecuted under the Proceeds of Crime Act 2022 for trading criminal property.

The case is the first in the world involving Uyghur forced labor to successfully disrupt supply chains which are complicit in the ongoing genocide of Uyghur and other Turkic peoples in Xinjiang, China. Recent years have seen growing evidence suggesting that China is using forced labor in Xinjiang, with the products of this forced labor flooding the rest of the world. The issue was taken as an accepted fact by the Court of Appeal which indicated that: “It was accepted that there is a diverse, substantial, and growing body of evidence that serious human rights abuses are occurring in the [Xinjiang] cotton industry on a large scale.” The issue was also raised by the 2022 report of the then U.N. High Commissioner for Human Rights, Michelle Bachelet, which found that “there are indications that labor and employment schemes, including those linked to the [Vocational Education and Training Centers, (VETC facilities)] VETC system, appear to be discriminatory in nature or effect and to involve elements of coercion, requiring transparent clarification by the Government,” among a litany of other human rights violations and abuses. Several non-governmental organizations and research centers have also identified companies being complicit and benefiting from this forced labor.

Despite the severity of the allegations, the topic has not received the attention it requires. However, for example, in the United States, the Uyghur Forced Labor Prevention Act, a bipartisan bill, was adopted to ensure that goods made with forced labor in Xinjiang do not enter the United States market. The Uyghur Forced Labor Prevention Act created a presumption that “with respect to any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang […] or produced by an entity on a list […], (1) the importation of such goods, wares, articles, and merchandise is prohibited under section 307 of the Tariff Act of 1930; and (2) such goods, wares, articles, and merchandise are not entitled to entry at any of the ports of the United States.” The Act provides for an exception where the importer has fully complied with the guidance described in the Act, completely and substantively responded to all inquiries for information submitted by the Commissioner to ascertain the origin of the goods, and “by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.”

The judgment of the Court of Appeal comes months after, in January 2023, the High Court accepted the U.K. authorities’ position refusing to exercise its powers under the Proceeds of Crime Act 2022 to combat the importation of cotton produced in Xinjiang. The judgment deals with two important questions: 1) whether it was necessary for the NCA to identify a specific product as criminal property before commencing an investigation into whether a money-laundering offense has been committed; and 2) whether paying the market value of the goods has the effect of “cleansing” criminal property so as to preclude its recovery from anyone who subsequently acquires it, or the recovery of the proceeds of its onward sale.

The Court of Appeal concluded that “it is clear that, on a fair reading of the decision letter, the NCA proceeded on the basis of an error of law. The decision letter, read as a whole, would convey to the reasonable reader that the NCA proceeded on the basis i) that it was necessary to be able to identify specific criminal property and criminal conduct before there can be a ‘proper basis’ for a [Proceeds of Crime Act 2022] investigation, (whether criminal or civil); and moreover, ii) that the provision of ‘adequate consideration’ anywhere in the supply chain would prevent any goods imported into the U.K. from being identified as criminal property or recoverable property. Both those propositions are, and are now accepted to be, wrong as a matter of law.”

​​The Court of Appeal emphasized that “a purchaser or importer who suspects the goods to be the product of forced labor or other human rights abuses would not be able to rely on [general exceptions to the recovery of the property in] Section 308 [of the Proceeds of Crime Act 2022].” As such, British importers of goods from Xinjiang will not be able to rely on the argument that they paid the market price for the goods. This is an important step to ensure that U.K. importers play their role in eradicating forced labor in the supply chain.

The Court of Appeal remitted the question of whether to carry out an investigation into forced labor to the NCA for reconsideration.