Attorneys General Want SEC Probe of Shein’s ‘Nefarious Practices’

Republican attorneys general from more than a dozen states are urging the Securities and Exchange Commission to require a third-party audit of Shein’s supply chain for signs of forced labor before the Chinese-founded e-tailer can move forward with its long-anticipated initial public offering.

“Shein’s growth has been built on nefarious business practices,” wrote Austin Knudsen of Montana, Tim Griffin of Arkansas, Alan Wilson of South Carolina, Jonathan Skrmetti of Tennessee and 12 others in a letter to chairperson Gary Gensler dated Aug. 24.

More from Sourcing Journal

“While the advertising puts a bright face on the company, there is a dark side to its rapid growth,” they added. “Various government, watchdog, and media reports have alleged that its rise has been ‘made possible by forced labor, human rights violations, stealing other designers’ work and the peddling of clothing made with potentially hazardous materials.’”

The letter noted that while Shein has moved its headquarters to Singapore, the ultra-fast-fashion phenom still relies “heavily” on a vast manufacturing network that’s centered on China. It ran through a list of familiar concerns, including Shein’s alleged use of forced-labor cotton from China’s Xinjiang Uyghur Autonomous Region, as uncovered by a Bloomberg investigation last year; its purported copyright infringement of independent designers; its reported use of low-wage contract workers; and its so-called exploitation of Section 321 of the 1930 Tariff Act, better known as the de minimis exception, to avoid duties and scrutiny on shipments of less than $800 in value.

The missive also drew a connection between the Temu adversary and TikTok, deeming it one of the controversial platform’s largest advertisers and claiming that it pays thousands of social media “influencers” to tout its products to consumers via “short and addictive videos.” Knudsen, who once dubbed TikTok a “Chinese Communist Party spying tool,” has himself successfully lobbied lawmakers to implement a first-of-its-kind ban on the app in Montana, though lawsuits currently playing out in court could derail it before its Jan. 1 implementation.

It’s Shein’s potential violation of the Uyghur Forced Labor Prevention Act, or UFLPA, however, that garnered the biggest focus. The letter referred to the U.S. House of Representatives Select Committee on the Chinese Communist Party’s ongoing investigation into whether Adidas, Nike, Shein and Temu are involved in the persecution of Uyghurs and other Muslim minorities. It said that America’s second most-downloaded shopping app—Temu is the first—has refused to engage with officials and is instead brandishing a “purported self-financed and managed certification process” to demonstrate its compliance with the law.

“Shein has a documented history of lying about its labor practices,” Knudsen and the others wrote, bringing up the Romwe owner’s spotty history with disclosures and a widely panned influencer trip. “Even Shein’s press tours with a carefully curated group of influencers meant to highlight how Shein claims it has brought its supply chain aboveboard, resulted in significant backlash and highlighted significant reasons for concern.”

More evidence of pushback, even among its trend-loving Gen Z target demographic: Last month, a student at Los Angeles’s Fashion Institute of Design and Merchandising made a Change.org petition demanding that the school cancel its Shein Project Launchpad program and honor the 12 promised scholarships with a “sustainable fashion company” that doesn’t “overproduce cheap disposable clothing” and hasn’t been accused of “shocking human rights violations in sweatshops.”

Even so, Shein’s presence in the United States is growing—and likely to grow further. It has a distribution center in Indiana and planned warehouses in California and the East Coast. Last week, the retail Goliath announced a one-third stake in Sparc Group, paving the way for Shein products appearing in Forever 21 outlets across the country.

“Shein’s policy is to comply with the trade laws of the countries in which we operate,” a spokesperson said. “We have zero tolerance for forced labor, and no contract manufacturers in the Xinjiang region. We will continue to engage with U.S. federal and state officials to answer their questions.”

In their letter to the SEC, the attorneys general said that an IPO of “this magnitude—involving a foreign-owned company that is facing credible concerns about its core business practices—cannot move forward on self-certification alone.”

Echoing similar correspondence that 22 members of the House of Representatives, led by Jennifer Wexton, a Democrat from Virginia, and John Rose, a Republican from Tennessee, sent Gensler in May, they asked the SEC to render independently verified compliance with Section 307 of the Tariff Act of 1930, which prohibits the import of any product manufactured wholly or in part by forced labor, a condition of being listed on a U.S.-based securities exchange.

“American exchanges should have a zero-tolerance policy for foreign companies that seek access to our markets but refuse to follow our laws, especially when the implicated laws are meant to prevent serious human rights abuses,” they said. “We believe in upholding the rule of law and protecting our economy. Lip service is not enough; in this case, the U.S. Securities and Exchange Commission must ‘trust, but verify’ that every such company is complying before it receives the privilege of being listed on an American securities exchange.”

Click here to read the full article.