2
July
2024

Will Shein’s plans to float on the London Stock Exchange during a general election ‘mask’ alleged supply chain scandal?

As the election draws near and the manifestos are rolled out - the main parties are vying for support from all quarters. It seems a rare occasion that both the Labour and Conservative parties have a common ground, but that is what we have seen in light of the Chinese clothing retail giant, Shein looking to float on the London Stock Exchange at a reported valuation of over £50bn.

John Hartley | Head of Business Crime and Regulation

As fast fashion giant Shein makes plans to float on the London Stock Exchange amidst a UK general election, our Partner and Head of Business and Crime Regulation, John Hartley shares his insights on how party leaders mustn’t overlook the retailer’s supply chain challenges in a bid to celebrate economic growth. John highlights that Shein’s alleged connections to forced labour, and its subsequent rejection from the New York exchange could be telling of what may be in store for the retailer once it floats on the UK market.

“As the election draws near and the manifestos are rolled out – the main parties are vying for support from all quarters. It seems a rare occasion that both the Labour and Conservative parties have a common ground, but that is what we have seen in light of the Chinese clothing retail giant, Shein looking to float on the London Stock Exchange at a reported valuation of over £50bn.

“A spokesperson for the Labour party has reportedly said ‘Raising investment, productivity and growth is one of Labour’s missions for government.’

“Jeremy Hunt, current Chancellor of the Exchequer, meanwhile has reportedly been in talks with bosses of the fashion retail giant to persuade the business to go ahead with its plans to formalise one of the largest flotations the UK has ever seen.

“However, whilst the UK politicians may be clambering for such a significant injection of cash into the UK economy, there is a back story to be told here, in that the London stock market was not the retailer’s first choice.

“It would appear that Shein’s first preference was to float on the New York exchange, but such plans were thwarted by the dwindling relationship, and increased political tension, between the US and China.

“A significant aspect of the reluctance among US regulators was the online retailer’s alleged connections to forced labour of the Uyghur population in the Xinjiang region of China. The US has strict sanctions regimes in place for businesses which may have supply chain connections to that region of China.

“This therefore leads to the topic of what the UK’s position is regarding modern slavery and international human rights if they are seriously considering Shein’s plans.

“The UK does indeed have significant global human rights sanctions available. There are currently several asset freezes against Chinese government officials and businesses for systematic violations against the Uyghur population.

“In 2021 the House of Commons published a report, following evidence from different sectors, including the fashion industry, concluding that there was mounting evidence that the Uyghur population and other ethnic minorities in Xinjiang Uyghur Autonomous Region (XUAR) have been the subject of systematic human rights violations. This includes forced labour, sanctioned by the Government of the People’s Republic of China.

“Another demonstration of a shift in the direction of the UK’s stance on the issue is the case of  R. (on the application of World Uyghur Congress (WUC)) v Secretary of State for the Home Department & Ors.

“Even though the claimant in this matter (WUC) was not successful, it did confirm that any offence which contravenes the UK’s Modern Slavery Act (which would include forced labour) is capable of generating criminal property as defined in the Proceeds of Crime Act. This would in turn trigger anti-money laundering legislation – leading to the freezing and potential recovery of funds by the UK enforcement agencies.

“This stance is therefore highly relative to UK businesses that have international supply chains – particularly in the fashion industry – and how the relevant due diligence is applied.

“The UK’s Modern Slavery Act requires qualifying businesses to set out, in a public statement, how they identify modern slavery risks in their supply chains and what steps are taken to minimise the risks.

“As Shein already operates in the UK, and is a qualifying entity, its UK subsidiary already has a Modern Slavery Statement available. This will no doubt be part of Shein’s application in the coming weeks to be listed on the London Stock Exchange.

“No doubt too that, should the Chinese fashion retailer float in the UK, the incumbent Government will take the credit.”

For more information about modern slavery or sanctions in the UK, contact John Hartley – our Head of Business Crime and Regulation – to discuss directly.

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