Forced Labor Import Bans

This article continues our series on the rapid expansion of forced labor import bans and their implications for global companies. Earlier articles examined human rights due diligence and documentary compliance in this context, surveyed the proliferation of forced labor import restrictions worldwide, considered key governance lessons from enforcement activity, and explored the relationship between forced labor and anti-corruption compliance. This article turns to a related issue that remains underdeveloped in many transactional settings: whether traditional M&A due diligence is equipped to identify and price forced labor import risk.

Introduction

Forced labor import bans are moving from a specialized human rights and customs issue to a broader commercial and operational risk for multinational businesses. Enforcement under the US Uyghur Forced Labor Prevention Act (UFLPA) and Tariff Act, the adoption of the European Union's Forced Labour Regulation (FLR), and emerging import restriction regimes in other jurisdictions is giving customs authorities increasingly significant powers to detain, exclude, or seize goods suspected of links to forced labor.

That shift has direct implications for transactions. In many M&A processes, supply chain human rights risk is still addressed through broad representations and warranties, standard questionnaires, and limited reviews of direct suppliers. Modern forced labor import regimes, however, can reach far deeper into the supply chain. A target company may appear compliant at the Tier-1 level while remaining exposed through upstream inputs, raw materials, or sub-tier suppliers. For buyers, that exposure can instantly freeze inventory at the border, halt revenue streams, disrupt commercial contracts, and destroy deal value. In an environment where customs holds can occur overnight, forced labor import bans can create a fundamental deal risk that should be integrated directly into target valuation, deal structuring, and pre-closing due diligence.

Growing Body of Laws and Business Impacts

As our prior articles have detailed, the United States Trade Representative Section 301 investigations and ensuing tariffs have led to a cascade of new forced labor import commitments. Recent reciprocal trade arrangements have, in several cases, obliged trading partners to adopt prohibitions on imports of goods made with forced labor.

Over the past few months, dozens of countries have adopted or proposed new regulations restricting the importation of goods made wholly or in part with forced labor. There has been a proliferation in Asia, including new forced labor bans in Cambodia, Indonesia, India, Pakistan, Sri Lanka, Taiwan, and Vietnam. Latin America has seen substantial activity, with restrictions in Ecuador, Nicaragua, Guatemala, the Dominican Republic, El Salvador, and Honduras, and proposals in Peru, Uruguay, Colombia, and Brazil, as well as activity elsewhere, including Israel. Additional regimes are likely to follow.

While the legislative and regulatory approaches take different tactics, and the consistency and degree of enforcement remain open questions across jurisdictions, the trend poses a substantial new set of considerations for multinational companies – particularly those that rely on sales across global markets, but equally those that rely on the importation of parts, components, and ingredients for their continued operations. That overlap between commercial impacts and legal, compliance, and human rights risks makes forced labor import bans particularly relevant in the context of corporate transactions.

Why Traditional M&A Due Diligence Fails for Forced Labor

However, there is a current fundamental disconnect between traditional corporate due diligence methodologies and assessing forced labor risk during an acquisition. In typical cross-border transactions, legal and commercial diligence focuses on direct corporate relationships. Buyers review contracts with Tier-1 suppliers, assess vendor master agreements, and confirm the existence of Supplier Codes of Conduct.

Forced labor import bans, however, create impacts well beyond these boundaries. In the United States, for example, whether a good is held based on the UFLPA or Tariff Act, US Customs and Border Protection (CBP) evaluates the entire chain of production, tracing finished goods back through intermediate processing steps to the extraction of the original raw materials.

A target company may maintain strong relationships with its direct manufacturers but remain materially exposed to substantial supply chain disruption because a Tier-3 or Tier-4 sub-tier supplier incorporates raw materials originating from a restricted region or entity. CBP's own forced-labor enforcement guidance instructs importers to trace to the raw material level, and CBP's enforcement statistics show that the bulk of detention value sits in electronics and automotive goods, sectors where the connection to a restricted region is almost always an upstream input such as polysilicon, aluminum, PVC or lithium, rather than the finished-goods supplier.

Transactional diligence rarely extends past direct commercial counterparties, leaving deal teams blind to these upstream vulnerabilities.

Further, acquisition diligence has relied heavily on third-party social audits, such as SMETA or SA8000 certifications, and self-administered compliance questionnaires provided by the target. But social audits, while potentially valuable, are typically point-in-time snapshots focused on working conditions at specific, physical Tier-1 facilities. They may not detect state-sponsored labor transfer programs, sub-tier raw material sourcing, or complex labor recruitment chains involving third-party labor brokers. Nor do they generally collect full mapping and traceability information across supply chains.

Customs agencies, however, require rigorous, document-by-document chain-of-custody tracing, including bills of lading, purchase orders, invoices, production records, and transportation logs, that connect specific shipments to verified, non-sanctioned origins. A target company that possesses high ESG ratings or strong Tier-1 suppliers, but lacks granular, shipment-level traceability data, remains at risk of detention and exclusion.

Unlike ordinary regulatory noncompliance, where a fine can be estimated, negotiated and indemnified, a detention removes physical goods from commerce, so the loss is operational and difficult to cap. Resolving a customs detention on forced labor grounds is also lengthy and complex. Responding to a UFLPA detention or a CBP withhold release order, for example, may require months of detailed submission reviews by federal authorities, with no guarantee of release.

During this period, the target company's capital remains tied up in seized inventory, storage fees accumulate, legal fees grow, and customer confidence erodes. Even if a target attempts to remediate its supply chain post-close by severing ties with an exposed sub-tier supplier, the process of qualifying, auditing, and integrating a replacement supplier can also take time. In short, these operational disruptions can impose significant unplanned financial impacts, and the global growth of forced labor import bans no longer makes this an isolated US risk.

The exposure also survives closing. Once the transaction closes, the buyer or one of its group entities typically becomes the importer of record, and the target's supply chain becomes the buyer's reasonable-care obligation.

A post-closing designation of one of the target's upstream suppliers to the UFLPA Entity List, for instance, becomes the buyer's problem with no recourse to the seller. Inaccurate origin or forced-labor declarations made by the target before closing can carry their own legal risks.

Forced labor risk in a transaction is therefore not only a pre-closing valuation question but a post-closing integration one.

Due Diligence and Deal Terms

Deal teams should consider several steps to enhance due diligence and address growing forced labor import bans around the world.

1. Use the Enforcers' Own Priority Lists to Scope Diligence: Buyers do not need to guess which of a target's product lines will be presumed suspect; enforcement authorities publish their priorities. The Forced Labor Enforcement Task Force (FLETF) designates high-priority sectors in each annual update to the UFLPA Strategy (the August 2025 update added sectors including steel, copper, lithium, and caustic soda to the existing apparel, cotton, tomatoes, polysilicon, aluminum, PVC, and seafood sectors) and maintains the UFLPA Entity List, against which the target's known upstream base should be screened. The European Commission's June 2026 guidelines under the FLR and its Forced Labour Single Portal, through which the regulation's database of forced labor risk areas and products is made available, serve the same function for the EU market, and the US Department of Labor's List of Goods Produced by Child Labor or Forced Labor is the most jurisdiction-neutral reference for the newer regimes. Where a target's inputs or sectors appear on these lists, traceability diligence should be directed there first.
2. Prioritize and Conduct Origin-Level Diligence: Rather than attempting to map a target's entire vendor list, focus deep-tier mapping on the products and components that carry the highest human rights and commercial risk. For those prioritized inputs, diligence must extend past Tier-1 suppliers and self-assessments to identify the ultimate geographic origin of key raw materials.
3. Test Chain-of-Custody Readiness: Test the target's operational capacity to produce document packages required by customs authorities. This includes reviewing raw material invoices, certificates of origin, transportation records, and factory-level production logs to verify whether the target could successfully challenge a customs hold.
4. Embed Trade Specialists into the Deal Team: Supplement general corporate diligence teams with human rights and trade compliance specialists early in the process to evaluate inherent and residual risks, and assess the strength of the target's processes.
5. Modernize Representation and Warranty Language: Move beyond generic representations that a target "complies with all environmental and labor laws." Transaction agreements should include explicit representations addressing compliance with specific forced labor trade regimes, the absence of prior customs detentions or inquiries, and the maintenance of verifiable supply chain traceability systems.
6. Enhance Contractual Protections: Consider including standalone, uncapped indemnities that survive closing to cover losses, legal fees, inventory write-downs, and commercial damages arising from pre-closing supply chain detentions or trade enforcement actions.
7. Add Specialized Closing Conditions: In transactions involving targets operating in high-risk sectors (identified using the enforcement priority lists described above and confirmed against the target's own customs history, including prior CBP detentions, CF-28 requests for information, UFLPA applicability or exception submissions, and customer-imposed traceability demands), buyers are increasingly inserting specific closing conditions. Rather than closing based solely on general legal compliance, buyers may require the target to provide comprehensive, mapped supply chain documentation for key product lines before the closing date. The target's own Automated Commercial Environment (ACE) import data, obtainable with its consent, is a direct source for this history.
8. Consider Special Escrows and Holdbacks: Consider establishing dedicated escrow funds held for extended periods, for example, 12–24 months, specifically allocated to cover potential customs detentions or supply chain remediation costs in high-risk sectors. Alternatively, in appropriate transactions, consider earn-out or deferred-payment provisions tied to agreed traceability milestones, supplier-remediation objectives, or implementation of enhanced sourcing controls, while accounting for post-closing operational control.

Conclusion

The expansion of global forced labor import bans represents a dramatic shift in trade regulation and cross-border commerce. As enforcement regimes mature and customs authorities worldwide expand their oversight over global supply chains, forced labor exposure has evolved from a reputational issue into a core financial and transactional risk. For buyers, sponsors, and corporate counsel, navigating this environment requires moving beyond traditional M&A diligence models. By replacing high-level questionnaires and Tier-1 audits with deep-tier supply chain mapping, tailored contractual protections, and integrated trade guidance, dealmakers can more effectively price supply chain risks, protect transaction value, and prevent post-close operational disruptions.