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An audit gave the all-clear. Others alleged slavery

Stock MarketsMay 19, 2021 11:10PM ET
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2/2 © Reuters. FILE PHOTO: Workers wait in line to leave a Top Glove factory after their shifts in Klang, Malaysia December 7, 2020. Picture taken December 7, 2020. REUTERS/Lim Huey Teng - RC2ZLK9X2B1Q/File Photo 2/2

By A. Ananthalakshmi, Liz Lee and Mei Mei Chu

KUALA LUMPUR (Reuters) - In December 2020, with coronavirus infections spreading rapidly across factories and workers' dormitories in Malaysia, officials raided latex glove maker Brightway Holdings near Kuala Lumpur. They said they found workers living in shipping containers, under conditions so squalid that human resources minister M. Saravanan later likened them to "modern slavery."

Nineteen months earlier, inspectors from a social-auditing firm - private contractors that help companies monitor environmental, social and other ethical standards in industries from toys to palm oil - had visited the same three facilities. In three reports over 350 pages, they had detailed 61 violations of global ethical standards and checked boxes for 50 violations of Malaysian labour laws.

Even so, the executive summary of each report concluded: "There is no forced, bonded or involuntary prison labour hired in this facility."

Brightway's customers include some of the world's biggest suppliers of personal care and protective equipment. The company's managing director, G. Baskaran, shared the audit reports from 2019 and 2020 with Reuters in April, saying they show that "we did not practice any form of forced labour or modern slavery."

These contrasting conclusions highlight little-known flaws in global efforts to monitor labour conditions. Social audits - independent reports used by global brands to test that their suppliers meet ethical norms – are not always effective in identifying labour risks, and can even obscure them, more than two dozen auditors, oversight bodies, factory workers and labour rights groups told Reuters.

Laws around the world prohibit the use of forced labour, but no rules govern the quality of audits, which are voluntary, audit firms told Reuters. Auditors are usually paid by the firms they are auditing, raising potential conflicts of interest if inspectors feel compelled to give positive reports to retain business. Beyond this, inspectors and Brightway workers told Reuters, companies can manipulate what auditors see on site.

There is no evidence of any impropriety by the auditor Brightway hired, British firm Intertek Group (LON:ITRK), which declined to comment on Brightway. Intertek said its audits meet stringent operational procedures with rigorous standards, and are themselves subject to regular and thorough independent audits. It did not say by whom.

Neither Saravanan, the Malaysian cabinet minister who criticized Brightway on national TV, nor his ministry responded to requests for further comment.

INVESTIGATION

About a month after the Malaysia raids, U.S. Customs and Border Protection opened investigations into Brightway. U.S. Customs is examining forced labour allegations including debt bondage, excessive overtime and poor accommodation, according to a letter the agency sent to Nepal-based independent labour rights activist Andy Hall after he drew the agency's attention to details in the audit report. Reuters reviewed a copy of the letter.

In response, Brightway said U.S. Customs has not asked the company for any details.

U.S. Customs said it does not comment on whether it is investigating specific entities. Companies it looks into submit audit reports during that process, and some reports it has seen have been "insufficient," a Customs official told Reuters.

"Many companies are not willing to get a candid assessment of their forced labour vulnerabilities because of the implications that can have on their reputation, their profitability, and their stockholders," said Ana Hinojosa, an executive director at CBP's trade office, which investigates forced labour allegations.

Two other social auditors who reviewed the Brightway reports for Reuters said some of the findings may indicate forced labour as defined by the International Labour Organization, which has set out 11 indicators that point to "the possible existence of a forced labour case." The relevant findings in the Brightway reports were: excessive working hours, high recruitment fees paid by workers to agents, and unsafe living and working conditions.

Labour activist Hall said the Brightway reports' conclusions were "completely misleading" because they overlooked evidence contained in the reports themselves. Customers who only read executive summaries would miss such evidence, he said.

WHAT THE AUDITOR SAW

Malaysia is a manufacturing hub for everything from palm oil to iPhone components. Firms there employ migrants from countries including Bangladesh and Nepal and have faced the highest number of U.S. sanctions over forced labour allegations after China. In the last two years, U.S. Customs has excluded purchases from four Malaysian companies after finding what it called reasonable evidence of forced labour.

The Brightway raid came as the United States had barred another glove maker, Top Glove, over forced labour allegations. Top Glove said in April it had resolved the issues that led to the ban, but the sanctions remain in place and U.S. authorities seized two shipments of the company's gloves this month.

At the time of the Brightway raid, Malaysian authorities were inspecting companies across the country to try to ensure worker accommodation did not become a vector for COVID-19 infection, and to avert further claims they abused workers.

As part of efforts to get the bans revoked, Malaysian companies have given millions of dollars to workers to repay recruitment fees that the workers have paid to middlemen. These fees can be onerous, forcing workers into debt.

In the Brightway case, recruitment fees were among problems inspectors had highlighted in the body of the reports. All 78 workers interviewed at the three facilities told inspectors they had paid recruitment fees of up to $4,200 each to agents.

Other points the inspectors noted include a dormitory in the same compound as the factory and a dorm without any beds or mattresses; different signatures on some workers' passports than on their employment contracts; and people working as many as 15 hours a day.

Malaysia's constitution prohibits forced labour, and the country has several laws that address safety, accommodation, working hours and other workers' rights. Brightway now faces a total of 30 charges for violating a law on minimum standards of housing and amenities, the Malaysian labour department said in December.

Brightway did not comment on these charges. Asked about the authorities' claim that workers were living in shipping containers, Brightway's Baskaran told Reuters the government inspectors were mistaken: The workers' quarters were covered with metal decking, which could have been misconstrued as containers, he said.

Brightway says it is not responsible for alleged violations such as recruiters charging hiring fees or imposing long hours, because it does not charge fees and overtime hours were in accordance with Malaysian laws. It said its dormitories were congested, "purely due to the COVID situation," because it had converted a warehouse into temporary accommodation.

After the December raid, Brightway paid its 2,719 workers 38 million ringgit ($9.21 million), to repay their recruitment fees, Baskaran said.

Asked about the audit findings on forced labour indicators, he said, "it depends on how you interpret forced labour."

RED FLAGS

Brightway's customers include Kimberly Clark of the United States, whose brands include Kleenex and Andrex; Australian personal protective equipment supplier Ansell; and the UK's National Health Service. All declined to comment in detail on Intertek's reports. Ansell told Reuters the audits, when it inspected them, "revealed several non-compliances with labour standards."

Ansell and Kimberly-Clark (NYSE:KMB) both said Brightway had corrected some of these problems since the government raid in December.

Kimberly-Clark spokesman Terry Balluck said the company was "keenly aware of the real-life challenges with an effective audit," but added that every audit identifies "some issue or opportunity," and audits continue to be an effective tool to safeguard workers at all levels.

Ansell said audits are a key tool that should be supplemented with dialogue and communication with suppliers.The NHS directed queries to the U.K. Department of Health and Social Care. A spokesman said, "all our suppliers must follow the highest legal and ethical standards or they can be blocked from applying for future contracts."

The International Labour Organization did not comment on the Brightway audit, but said it was aware of doubts over how effectively such private initiatives protect workers' rights.

"There is also the question about what happens before and after the audits, and how the violations detected are addressed," the UN agency said in an email.

Five Brightway workers told Reuters they had been informed in advance by their supervisors of planned audits. They said they were asked to clean their hostels ahead of time and provide only positive feedback about the company on their food, hostel facilities and access to passports.

All five, speaking on condition of anonymity, said Brightway usually withholds workers' passports but places them in their personal lockers on days auditors visit. Retention of passports by an employer is considered a forced labour indicator by the ILO.

Brightway's Baskaran said workers can access their passports any time in the lockers, for which they have keys. Brightway does not prepare workers for the audit, but there are efforts to clean hostels, he said.

"During audits, just like everything else, it is a norm to put in extra effort to clean up the place, amongst other activities," he said.

($1 = 4.1250 ringgit)

(Edited by Sara Ledwith)

An audit gave the all-clear. Others alleged slavery
 

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