State officials want Shein to prove it doesn't use forced labor before it goes public

Fast-fashion juggernaut Shein is facing more scrutiny from elected officials in the U.S. who want the company to prove it doesn’t use forced labor before it files for a widely rumored initial public offering. Attorneys General from 16 states wrote to Gary Gensler, the chair of the U.S. Securities and Exchange Commission last week to ask him to make sure that Shein and foreign companies follow U.S. laws before they are allowed to trade on American markets. It is clear that SHEIN wants to do an IPO by the end of the calendar year. The missive was written by Montana Attorney General Austin Knudsen, and signed by fifteen other Republican Attorneys General. It stated that an IPO of such magnitude, involving a company owned by a foreign country, which is being questioned about its business practices, cannot be done solely on self-certification. “We urge you to insist that, in order for a foreign-owned firm to be listed on an American securities exchange, it must certify, via a truly independently conducted process, that they are compliant with Section 307 of Tariff Act of 1929, which prohibits importation of products manufactured entirely or partially by forced labor.” The letter was sent on Thursday, the day after the company announced that it would be taking a stake of Forever 21’s parent Sparc Group. The company has a strong supply chain in China where it was established, but U.S. laws prohibit imports of Xinjiang due to widespread abuses committed against Uyghurs. The company is under investigation by the House Select Committee for the Chinese Communist Party. Shein has been accused of violating U.S. Tariff Law. The probe comes as U.S. lawmakers from both parties increasingly scrutinize companies from China or those with potential ties to its government.

The letter cited a Bloomberg story published last year that showed, via independent testing, that some Shein clothes were made with cotton from the Xinjiang region. Shein has been hit with a lot of criticism after the report. The retailer has to overcome the accusations before it can expand its presence in America and go public. Shein’s executives and Shein itself rarely spoke out at the time the Bloomberg report was published. Since then, Shein has been more open with the press and acknowledged to CNBC some of its supply comes from Xinjiang.

To track down the origins of its cotton fibers, the company contracted Oritain to test it. The firm claims to be able to trace the cotton fibers back to specific farms. Peter Pernot Day, Shein’s director of strategy and corporate matters, said that between June 2022 to July 2023 it had conducted 2,111 testing, with 46 positive results or 2.1% of the banned regions.

“These are in raw materials so when we have a raw material positive test, that means that raw material is removed from production,” Pernot-Day said.

Oritain, which bills itself as an independent firm, previously confirmed those results to Politico and said Shein has fared better than the fashion industry on average. The company tests over 1,000 cotton samples each year. Politico reported that during a recent round of testing across the industry, Oritain discovered 12% samples were positive for a “non-approved region”. Pernot-Day stated that Shein is currently working to reduce the number of positive test results. Pernot-Day stated that Shein is testing all of its 40 mills every month and has stopped buying cotton from China.