By Dietrich Knauth

Law360, New York (October 2, 2012, 6:06 PM EDT) — The White House has used an executive order to recruit federal contractors for the U.S. government’s attempt to fight labor trafficking at home and abroad, but some experts say comprehensive legislation is still needed to stamp out trafficking violations under U.S. contracts.

Congress has proposed several legislative solutions that drew support from both Democrats and Republicans, but failed to push any legislation through the political gridlock in Washington, D.C. The White House executive order incorporates many of the ideas put forth in legislation, but unlike some earlier proposals, does not focus on criminal or civil penalties. Instead, it gives contractors an increased responsibility to report, root out and remedy labor trafficking among their suppliers and subcontractors.

Even without a legislative complement, the executive order should not be underestimated, according to T. Markus Funk, a former U.S. Department of State and Department of Justice attorney who co-chairs Perkins Coie LLP’s corporate social responsibility and supply chain compliance practice. The order springs from a natural evolution of the State Department’s global anti-trafficking efforts and enlists businesses as powerful partners in that fight, Funk said.

“This is a huge undertaking with global reach,” Funk said. “While taxpayer dollars were once spent on assisting foreign law enforcement and spreading the word about the realities of trafficking, now the U.S. government has directly conscripted all contractors and subcontractors wishing to provide goods and services to the U.S. government into this global fight.”

The order’s impact will depend on the regulations written to carry it out. But it spells out the warning signs contractors have to look for and the kinds of actions they have to take to ensure their suppliers and subcontractors aren’t involved in trafficking. For instance, companies with more than $500,000 in federal contracts must train employees to spot signs of trafficking and allow them to report trafficking violations without fear of retaliation. They also have to certify that neither they nor any of their contractors have engaged in trafficking-related activities.

The order goes further than the floated legislation in one important area: Where legislation in the Senate and House of Representatives would prevent companies from entrapping workers by charging them “excessive” recruitment fees in exchange for the promise of work, the executive order bans recruitment fees entirely. The executive order also forbids companies from misleading potential employees about the locations of their jobs, lying about living and working conditions, denying them access to their passports or drivers’ licenses, or failing to pay return transportation costs for employees who travel to other countries for work.

After the president’s order was handed down, Sen. Richard Blumenthal, D-Conn., and Rep. James Lankford, R-Okla., said Congress must still act to ensure U.S. tax dollars don’t inadvertently fund trafficking. Lankford accused the president of trying to “jump in front of the moving crowd and claim leadership” rather than move more comprehensive legislation forward. He noted that more than 20 executive policies and regulations have failed to halt trafficking.

“One more executive order will not solve the problem,” Lankford said. “We have a loophole in our law that must be closed, and we have serious enforcement issues of existing law.”

Sam McCahon, a government contracts attorney who has testified before Congress as an anti-trafficking expert, agreed with Lankford and Blumenthal on the need for a legislative solution and criticized the executive order’s requirements as incomplete. Legislation such as Lankford’s End Human Trafficking in Government Contracting Act would include the criminal provisions and enforcement mechanisms necessary to stop trafficking in countries where the rule of law is not as strong as here, he said.

“We are not talking about some minor, obscure aspect of the acquisition cycle. We are talking about the U.S. government using U.S. taxpayer dollars to pay companies and individuals who use slave labor to support our troops on the battlefield and embassy workers on mission,” McCahon said. “I do think that the EO was necessary, but as written, not comprehensive enough to abolish trafficking on government contracts. It could have abolished the practice with some additional noncost measures. As signed, it is merely a good first step in the right direction.”

McCahon said the order could be improved by a mandate that recruiters be licensed in the country where recruitment takes place, which would prevent shady recruiters from disappearing with no paper trail. It should also require that workers receive written contracts a week prior to departure that clearly spell out work location, compensation, work hours and other important details, he said.

According to McCahon, these simple steps would combat the core problem by preventing recruiters from trapping workers into indentured servitude. Corrupt recruiters accomplish this by charging upfront commissions — often two to five years of a worker’s average income in his or her home country — for jobs that pay much less than promised, he said.

The practice is “shockingly common,” according to the nonprofit Project On Government Oversight, which lauded the president’s order. Media reports and several congressional investigations, including some by the bipartisan Commission on Wartime Contracting, have added to the weight of evidence about the prevalence of the bogus recruitment fees.

“Trafficking in humans to support government contracts is the rule, not the exception,” McCahon said. “It is the rare case indeed to find a laborer serving in base support operations or logistical support who has not been a victim of deceptive hiring practices and illegal commission paid to labor brokers that result in a state of indentured servitude.”

While some have argued for legislation to add criminal penalties for contractors who support trafficking, Funk said human trafficking is already illegal under U.S. law. Any company falsely certifying its compliance with the promised anti-trafficking regulations also risks being charged with making false statements to the government, he said. The executive order will further incentivize contractors to break ties with unscrupulous foreign partners, a trend already underway as companies seek to avoid liability under the Foreign Corrupt Practices Act, Funk said.

“The new executive order simply adds another weight on the side of staying away from such questionable business partners,” Funk said. “After all, whenever you are talking about doing business with a foreign company willing to use trafficked labor, you are almost certainly also dealing with a company willing to, for example, violate anti-corruption, labor and environmental laws.”

Still, it will be expensive for contractors to comply with the new anti-trafficking rules, which will force companies to invest in new training and far more rigorous due diligence and vetting of foreign partners, Funk said. Investigating possible trafficking will likely be more expensive and complicated than resolving issues related to the FCPA or the U.K. Bribery Act, Funk said. For one thing, trafficked workers are rarely “chained up in shipping containers or being forced to work at gunpoint,” and often fall victim to desperation and economic coercion rather than outright force, he said.

“Although we often think of anti-trafficking ‘raids’ and the like that result in locks being broken and trafficking victims being liberated, it is a lot more complicated than that,” Funk said. “You cannot go in there, interview the employees and have them tell you, ‘Yes, I’m a victim of human trafficking — please release me.’ In many instances, victims will be fearful of cooperating and will not want to accuse their captors.”

Companies could also be on the hook for expensive remediation, depending on forthcoming regulations. The executive order is not clear on whether contractors would be responsible for covering the costs of back pay or plane tickets home, for example.

While some businesses may have private misgivings about the costs of compliance, few are likely to speak out against an order combating a problem as heinous as trafficking. Some business groups, like the Global Business Coalition Against Trafficking — which includes The Coca-Cola Co., Microsoft Corp. and Ford Motor Co. among its members — have already embraced the rule wholeheartedly. Meanwhile, others such as the Professional Services Council have greeted it with an eye toward helping the administration create “executable regulations” for enforcement.

In announcing the order, President Barack Obama said the U.S. has a moral obligation, as the largest single purchaser of goods and services in the world, to ensure American tax dollars do not contribute to “modern-day slavery.” Input from private companies can help sway the tide against trafficking, which affects more than 20 million workers worldwide, the president said.

While it is not a silver bullet, the executive order extends the United States’ leadership in the fight for better working conditions worldwide, Funk said.

“Our nation’s anti-trafficking efforts provide an example of the U.S. trying to do the right thing abroad that even the most committed U.S. cynic will have a difficult time knocking,” Funk said. “The arrival of the executive order will not magically cause questionable companies around the world to stop using trafficked labor. Instead, government contractors are going to have to engage in more heavy-duty vetting and due diligence concerning the people they do business with.”

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