Introduction to the case
The recent modern slavery scandal involving fast-fashion Boohoo serves as a reminder of why thorough investigative due diligence is crucial in avoiding skeletons in your supply chain.
Details of the fraud
Boohoo, a prominent online fast-fashion retailer, faced a major modern slavery scandal in July 2020 when an undercover investigation revealed severe mistreatment of workers in a UK supplier factory. The Boohoo supply chain scandal first erupted on July 5, 2020, when an undercover investigation by The Sunday Times revealed that workers in one of Boohoo’s vendor’s factories were being paid as little as GBP 3.50 an hour, which was far below the UK minimum wage. Workers were also subjected to poor working conditions. In response to the undercover investigation, Boohoo commissioned an independent review three days later on July 8, 2020, to investigate these allegations. The allegations were found to be “not deliberate” but “substantially true” by the independent review, which was published in September 2020.
Following that, Boohoo launched an internal review program and severed ties with over 400 suppliers, which were found to be violating human rights laws. At the time, numerous online retailers dropped Boohoo in response to the modern slavery scandal.1, 2 Recent reports indicate that Boohoo continues to face reputational damage and financial loss years after the scandal emerged. A BBC investigation published in 2023 revealed that poor working conditions in its supply chain persist.3
How did the fraudsters commit the crime?
The independent review in 2020 found that Boohoo grew so fast that its governance processes failed to keep pace. Specifically, the review highlighted that Boohoo concentrated on revenue generation, sometimes at the expense of sound corporate citizenship principles and obligations. For example, adequate monitoring of its supply chain and business partners was not a priority. While the review found no evidence that Boohoo itself or its officers committed any criminal offense in relation to the scandal, the review noted that, from at least December 2019, senior Boohoo directors knew that there were serious issues about the treatment of factory workers by suppliers and had failed to act. The company was said to have failed to consider any risks of potential labour exploitation at its supplier factories and had “not felt responsible for conditions in the [supplier] factories on anything other than a superficial level.”4
The review concluded that Boohoo did not prioritize monitoring working conditions in its supplier factory because the company considered it to be less important than issues directly affecting the company. Since the supplier factory’s employees were not Boohoo's employees, the company’s management did not feel responsible for them in the same way.
What was the outcome?
In response, Boohoo committed to enhancing its corporate governance by appointing new non-executive directors and an independent overseer to implement necessary changes.5
The disclosure of Boohoo’s supply chain issues caused reputational damage to Boohoo and losses to its investors. Several litigation cases were filed against Boohoo by stakeholders. For example, in May 2024, Fox Williams, a London based law firm, filed a lawsuit in the United Kingdom against Boohoo, on behalf of 49 institutional investors who suffered losses from the dropped share prices related to the labour scandal. The lawsuit alleged that Boohoo breached its obligations as a publicly listed company by making untrue or misleading statements and failing to disclose or delaying the disclosure of material about the issues to the market.6 A June 2024 Retail Gazette article noted that investors claimed that Boohoo failed to keep its past promises of fair production. This incident underscores the critical importance of robust supply chain oversight and proper environmental, social, and governance (ESG) reporting.
Why investigative due diligence matters in supply chain risk management
Boohoo’s initial mindset was that it is not responsible for its suppliers’ employees. That perspective was clearly inconsistent with market expectations that held Boohoo accountable for the behaviour of its business partners. Hence, the Boohoo scandal underscores the critical need for proactive and diligent supply chain risk management as part of a robust corporate governance framework. This lesson is applicable across industries. Sound supply chain risk management includes deploying background due diligence of vendors and business partners. Reasonable efforts to verify and identify information on entities using available public records and local sources can reveal concerns about past allegations or regulatory actions. Investigative due diligence can include pre-onboarding background checks, continuous vendor monitoring, third party verification, and geo-political risk assessments. Such searches and assessments should be periodically refreshed to maintain continuous monitoring.
Canada has recently implemented a Legislation Against Forced Labour and Child Labour in Supply Chains Act, a regulatory measure aimed at combating forced labor and child labor within the supply chains of companies operating in Canada. Similarly, the European Parliament has approved a new due diligence directive designed to mitigate or eliminate adverse impacts on human rights and the environment.
These legislative trends underscore a growing global emphasis on ethical business practices and the protection of human rights, as well as ESG reporting. Companies and those running the businesses worldwide are increasingly expected to ensure their operations, supply chains, and business executives are free from unethical practices. By adhering to these standards, businesses will not only comply with regulations but also build trust with consumers and stakeholders.
How BDO can help
Using a risk-based approach, investigative due diligence can help clients mitigate ESG risks by examining any underlying problems from third or fourth parties that could potentially jeopardize their reputation and financial interests. Our approach stems from fact-based research using a wide range of tools examining media, regulatory, legal, sanctions, and watchlists records.
Our investigative due diligence team offers global resources and experience. Our team excels at gathering relevant information and analyzing large volumes of data. We can effectively connect the dots—presenting the findings in a clear and digestible manner. In today's information-driven era, investigative due diligence offers an essential layer of protection. Reach out to our team for more information.