• Jeremy Mears

China’s Treatment of Uighurs Raises Importance of AI in Tackling Supply Chain Risk

Updated: Jul 27

SANCTIONS RAISED AGAINST CHINESE ENTITIES INVOLVED HUMAN RIGHTS ABUSES AGAINST UIGHURS IN XINJIANG REGION.

The United States on 20 July announced another round of sanctions against Chinese entities involved in human rights abuses against Uighurs in the Xinjiang region, continuing to signal a more aggressive posture against China's use of forced labor and reinforcing the importance of conducting effective third-party vendor due diligence investigations. The move follows a US announcement in early July placing a number of Chinese officials, including a member of China’s Politburo, on the designation list for their alleged role in Uighur-related human rights violations, effectively blocking assets and barring them from entering the United States.

HOW DID WE GET HERE?

Depending on whom you’re talking to, the story can get very complicated and date back decades. Xinjiang is a massive region in northwest China with a population of about 25 million people, half of whom consist of a Turkic-speaking ethnic group known as Uighers. A large body of press reporting indicates that China since circa 2014 has been engaging in large-scale repression of its Uighur population, building facilities deemed much like prisons with alarms and double-locked doors, while deploying a system of forced-labor to produce a number of goods, to include raw materials such as coal and cotton. The products are then transported across the country and internationally, presenting unique challenges to third-party supply-chain risk management. Moreover, firms around the globe are at risk of unwittingly exporting key products to firms located in Xinjiang, some of which are involved in human rights abuse-related activities such as the development of surveillance and facial recognition technology as well as the construction of the facilities used to detain Uighurs.

Such developments once again are compelling firms worldwide to raise their compliance standards and build a good-faith third-party vendor due diligence program, both to satisfy commercial responsibility and a moral obligation. Firms must commit to robust due diligence programs as responsible actors. Any party that a firm recruits to satisfy a task, whether it’s cleaning carpets or providing a key technology, requires an effective due-diligence process to determine any questionable activities or affiliations. The impact of COVID-19 unfortunately has threatened firms’ bottom lines worldwide, increasingly straining the ability to scrutinize vendor relationships.

How does one determine that there are no North Korean “touch points” within a supply chain; what steps are being taken to ensure that vendor inputs do not include raw materials produced on the backs of Uighurs living in detention centers? Importers have a statutory obligation to use reasonable care when procuring goods utilizing a supply chain.

THE ROLE OF AI

The US Department of Treasury expects that firms do more than simple queries using internet search engines as part of their due diligence process. In fact, Treasury’s Office of Foreign Assets Control since the mid-2000s has been stepping up designations, often with enormous fines, and in some cases ostensibly to prove a point regarding the importance of nurturing a vigilant program.

The first step to strengthening a compliance foundation is to conduct an internal audit to help identify risk, understand the compliance posture, and speak to supply-chain personnel. A proactive program requires excellent integration and communication between relevant departments, even potentially extending the effort to outside firms within the same industry. In today’s digital environment, however, the challenge remains the increasingly massive volume of data that must be digested and processed, effectively requiring a more tech-savvy approach to augment controls and obtain data faster and with better accuracy.

Companies must increasingly look to employ sophisticated tech-based third-party screening programs to satisfy their due diligence requirements and avoid working with restricted parties. With superior data science, such as artificial intelligence (AI), a firm can adjust thresholds to reduce false positives and help draw suspicious associations that almost certainly would have dodged a compliance officer’s manual effort. AI-based solutions harness insights from multiple sources of data; both structured and unstructured, transaction data, email and the internet; helping to strengthen monitoring and reduce costs. By adopting emerging cutting-edge technologies, firms can reap invaluable benefits such as on-boarding vendors more quickly, improving in-depth investigations, enabling the quality of alerts, and significantly reducing compliance-related costs for the organization, better defending a firm when regulators inevitably find the needle buried deep within the haystack that previously went undetected.

In today’s complex world, supply-chain analysis needs to be increasingly informed. “An ounce of prevention is worth a pound of cure.” - Benjamin Franklin


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